What happens when the income tax returns are not filed in a timely manner? Is it possible to go back and file tax returns for earlier years?
Come 31 July and salaried tax payers get into a frenzy of filing their tax returns. The due date for individual tax return filing has generally been 31 July of the subsequent financial year. However, for FY 2017-18, the due date has just been extended to 31 August 2018. Similar extensions have been announced in the past, but these are more of exceptions. So what happens when the tax returns are not filed in a timely manner? What are the consequences of non-filing? Is it possible to go back and file tax returns for earlier years?
Consequences of late filing
Filing tax returns within the due date is mandatory for taxpayers having taxable income exceeding the basic exemption limit. Consequences of filing beyond the due date include additional interest payments, penalties or fees for late filing. Further, whether the tax payer has sustained losses under the head profits and gains of business or profession or capital gains, the opportunity to carry forward such losses is lost.
Belated tax returns
The Income Tax Act provides that where an individual is unable to file his tax returns within the specified due date, he shall file the same within the end of the relevant assessment year, but before the completion of assessment. This means that instead of the regular 31 July date, the returns may be filed as belated returns by March 31 of the subsequent financial year. Belated returns relating to FY 2016-17 cannot be revised to correct any errors or omissions. Further, a penalty of Rs 5,000 could be levied at the discretion of the tax authorities.
However, taxpayers filing belated tax returns for FY 2017-18 onwards do have the opportunity to revise the same within the specified timelines, but would attract a late return filing fee as below:
# Where the taxable income does not exceed Rs 500,000, the fee would be Rs 1,000
# Where taxable income exceeds Rs 500,000 and the return is filed by 31 December of the subsequent financial year, fee would be Rs 5000, while for filings beyond 31 December, the fee will be Rs 10,000
Timelines for revising tax returns
In the event of any errors or omissions in the tax returns, the return may be revised within the specified timelines. For FY 2016-17, the due date for revision is within two years from the end of the financial year, whereas for FY 2017-18 onwards, this period has been curtailed to one year from the end of the financial year. However, the tax returns in either case need to be revised before the completion of assessment.
A quick snapshot of the above is provided in the table below:
|Financial Year||Due date for filing tax return #||Belated return could be filed within**||Revised return timeline**||Whether belated return can be revised||Late return filing fee/ penalty beyond due date in Rs|
|2016-17||5 August 2017||31 March 2018||31 March 2019||No||5000|
|2017-18||31 August 2018||31 March 2019||31 March 2019||Yes||1000/5000/10000|
|2018-19||31 July 2019||31 March 2020||31 March 2020||Yes||1000/5000/10000|
# Extended filing timeline where applicable
** However, needs to be filed before completion of assessment.
Where the tax return timeline has been missed, say for FY 2016-17, where a belated return should have been filed within 31 March 2018, what happens when the taxpayer identifies a tax filing obligation subsequently? The taxpayer is duty bound to pay the taxes, along with applicable interest. But given that the tax return filing obligation has not been met, the consequences would depend on whether the income which was omitted to be reported is an overseas income or not. Some of the approaches tax authorities could adopt would include:
# Issuance of a notice for income having escaped assessment
# Levying penalty equivalent to 50% of the tax payable on the under reported income
# Punishment by initiating prosecution
Considering the above implications, one must endeavor to diligently identify taxable income and file the tax returns within the prescribed due dates.
(By Saraswathi Kasturirangan, Partner, Deloitte India, and Pallavi Dhamecha, Senior Manager, Deloitte Haskins & Sells LLP)