It’s that time of the year when tax payers are rushing to file their income tax returns for financial year 2015-16. With less than 3% of people in India filing tax returns, the perception amongst most of them still lays on the fact that since TDS has been deducted filing of tax returns is not important.
Many tax payers also often take it easy as an Income tax return for FY 2015-16 can be filed by March 2018. However, sticking to the timeline of July 31 has its own added advantage.
Carry forward of losses
Under the income tax laws, in case the taxpayer has a business loss or loss under the head capital gains, then such loss can only be carried forward to future years for set-off if the income tax return is filed on time. Therefore, such losses could only be adjusted with future income if the return is filed on time before July 31. The only loss that is allowed to be carried forward in case of late return is loss from house property.
Revision of return
There is always a slight chance of an error while filing your income-tax return, for example wrong bank account details, or a wrong computation or missing the details of certain income. A tax payer who files his return on time can revise the same umpteen times. However, in case a return is filed late, revision is not possible.
Delay in tax refunds
Taxpayers who file their tax returns on time get their returns processed quickly and hence get faster refunds. Last year many taxpayers who filed their returns before the deadline got their refunds. Also in case of late filing of tax returns, interest by the authorities is only payable from the date of filing of return to the date of payment. No interest is payable for the delay period.
Interest and penalties
In case of late return, the taxpayer is liable to pay an interest at the rate of 1% per month on the tax due till the date of filing of tax return. Also a penalty of Rs 5,000 may be levied by the tax department. In case of willful delays, there are provisions of higher penalties and even prosecution in some extreme cases.
Proof of income
An income tax return is also a document for proof of income. It is useful in various circumstances such as applying for a credit card or applying to bank for a loan. This helps the banks ascertain the financial capability of any person.
Visa for foreign countries
Foreign countries want to make sure that an individual is financially sound before granting them a visa. Hence they rely on a person’s income tax return to vouch financial stability. A notable change brought about during the Budget 2016 is the reduction of time period for filing of belated income tax returns. The period of filing belated returns has been reduced from two years to one. Taxpayers will need to file returns before the end of the relevant assessment year. However, this change will apply from FY 2016-17.
Considering the advantages of filing a tax return on time and considering that at least a week is still left for filing of tax return for this year, it is advisable to ensure that the income tax return is filed within the due date of July 31, 2016. But where due to non-availability of time, the tax return is not filed within the due date, it should be ensured that the belated return is filed accurately with appropriate disclosures and deduction claims.
(Suraj Nangia is partner, Nangia & Co)