At the time of filing the income tax return, entire taxable income is included and accordingly the tax liability is determined. If appropriate projections are not done in advance, taxes could still be payable at the tax return filing stage.
Typically for individuals (not subject to tax audit) and salaried employees, the income tax return filing due date is 31 July for a given tax year (i.e. 1 April to 31 March), unless it is extended. At the time of filing the income tax return, entire taxable income is included and accordingly the tax liability is determined (after considering available exemptions / deductions, if any). Also, necessary tax credits (i.e. tax deducted at source, advance tax and/or self- assessment tax) will be available against such income tax liability. If the available tax credits are not sufficient, there will be additional tax payable along with applicable interest. Thus, if appropriate projections are not done in advance, taxes could still be payable at the tax return filing stage.
We have specified a few illustrations below wherein there could be additional tax payable at the returns filing stage:
# Change of employment in between the tax year wherein both the employers have considered available slab rates and deductions (as the new employer was not provided details of salary and tax deduction of old employer);
# Sudden fund requirements leading to sale of capital assets, wherein there are taxable capital gains which are not eligible for specified exemptions;
# Surcharge is applicable on the income tax payable if the total income exceeds specified threshold (i.e. 10% surcharge is applicable if total income exceeds Rs 50 lakh but up to Rs 1 crore and 15% surcharge is applicable if total income exceeds Rs 1 crore). Thus, as the taxable salary income was less than the specified threshold(s) the employer did not levy any surcharge while deducting taxes at source. However, after including personal income (i.e. rental income, interest, capital gains etc) the total income exceeds specified threshold(s) and thus surcharge becomes applicable on entire tax liability which was not estimated earlier;
# Tax deducted at source on personal income is at a lower rate compared to the slab-rate at which the income is taxable in the returns (viz – the taxes deducted at source on personal income are deducted at the rate of 10%, but the slab-rate applicable is 30%).
Thus, if there is tax payable at the returns filing stage, the following steps can be taken:
# The taxes (along with applicable interest) can be paid online through net banking. However, the same is possible only through specified authorized banks. In case of online payment through authorized banks, challan details will be immediately available which is required to be updated in the income tax return form, before filing the same. Also one need to be cautious of bank holidays since the online payment may not be available on that day which will lead to delay in filing the return. It is important to note that in case of a company and / or taxpayers subject to tax audit, payment of taxes can be made only via electronic mode;
# If there is no bank account with authorized banks or if online tax payment facility is not available with the bank, eligible taxpayers can make payment via cheques. In case of a cheque payment, it typically takes 5 to 6 days to get challan details. Thus, if the challan details are not received on time, it will be difficult to file returns within the due date;
# Alternatively, payment can also be made from the bank account of another person who has an account with the authorized bank and through which online payment is possible;
# As per the erstwhile provisions of the income tax law, filing a tax-payable return was considered as a defective return. Thus, taxes were required to be paid before filing the return. With effect from tax year 2016-17, provisions were amended and thus filing of a tax payable return is not considered as a defective return. However, as per other provisions of the income tax law, if taxes are not paid before filing the return, the assessee will be treated as ‘assessee in default’ and thus may be subject to penal consequences along with interest implications. Accordingly, if there is any tax payable at return filing stage, the same needs to be paid before filing the tax return;
# Further, if taxes are not paid by the original return filing due date (which is 31 July), a belated return will have to be filed once the taxes are paid. However, filing a belated return can lead to additional consequences like:
a) Additional interest for delay in return filing;
b) Fees of Rs 5,000 will be payable if return is filed on or before 31 December of the relevant Assessment Year (AY) or else the fees will be Rs 10,000. However, if the total income does not exceed Rs 5 lakh, fees payable will be Rs 1,000;
c) Losses (other than House property loss) cannot be carried forward;
d) Certain specified exemptions / deductions will not be available
It is important to note that the due date of filing a belated return is amended with effect from AY 2017-18. Thus a belated return can now be filed by the end of the relevant assessment year or completion of assessment, whichever is earlier (viz – for tax year 2016-17 (i.e. AY 2017-18), the belated return can be filed only up to 31 March, 2018).
Given the gravity of the above complications, it is imperative to prepare tax computation well in advance to project appropriate tax liability. Thus, necessary tax arrangements can be made for payment of taxes before filing the return. Further, payment of timely advance tax during the tax year as per specified installments can save interest costs, which will otherwise be payable at the rate of 1% every month or part of the month. Hence, it is important to keep the tax compliance and related timelines in order, else there could be additional tax, penal and interest consequences.
(By Homi Mistry, Partner, Deloitte India, and Jimish Vakharia, Senior Manager, Deloitte Haskins & Sells LLP)