Many people treated filling of Income Tax Returns as a legal burden. The filling of Income Tax Return is treated as an annual trouble often. Individuals and businesses consider it as a legal compliance obligation to submit the tax liability to the government which they primarily owe in form of taxes to the government. However, a submission of tax returns are more than just depositing the tax liability, it is a legal comprehensive document which acts as a base document for the financial credibility.
Under the Income Tax Act, filling of tax returns are mandatory for those who have income exceeding the basic exemption limit as prescribed under the law. The ignorance and failure to file tax returns results in financial penalty, late fees, interest on delayed payments, and other long term complications.
1. Financial Penalties and Interest Costs – The most important cost to any individual and business is the applicability of penalties and interests on delayed or non -payment of tax liability within the due date prescribed under the sections of the Income Tax Act. Under Section 234B and 234C, the interest so calculated along with tax payable is to be paid at the time of making the payment which adds as a direct cost to those who have not filed the tax returns with tax liability there on.
2. Late Fees under Section 234F – There is a provision under the Section 234F of the IT Act where the tax returns filed after the dates prescribed under the Act are required to pay late filing fees of up to INR 5000. This is a automatic applicable provision where even if there is no tax liability or tax liability is fully discharged then only due to non-filing of tax returns on due date, the late fees is applicable. Consider an example, where the employer has fully deducted tax liability from the salary of the employee but the employee has not furnished his tax return on due date, the late fees to the tune of INR 1000-5000 may be applicable when he would file his tax returns on a date later than the due date prescribed under law.
3. Interest to be paid under Section 234A – The interest under this section of Income Tax Act is applicable where the tax return is not filed within the prescribed due date. The interest @ 1% per month or part thereof is charged and calculated from the next day when the tax return is due under law to the actual date of filing of return. This interest is the additional cost to the persons who fails to file their tax returns on due date.
4. Entitle Tax Refunds are not claimed – Many times , the individuals who have tax deducted at source exceeding their tax liability due to non-filing of tax returns are not able to sought the tax refunds which they are entitled. It is a common issue among people that tend to forgot filing the tax returns whereby they are not able to claim tax refunds due to them. The only way of claiming the excess of tax paid is by filing of tax returns only and there is no other way out. The non-filing of income tax returns lead to the amount being held at the government side and the money of tax payer is stuck. For Example – Where a individual person who have done some professional work of INR 250000, has a TDS of INR 25000 deducted by the person making the payment, is not able to claim this INR 25000 from the government where his total income is less than the basic exemption limit due to non-filing of tax return on or before due date.
5. Ineligible to Carry forward losses – There are various losses like stock market losses, loss on capital assets sold, etc. incurred during the year which can be carry forward for future to set off against the income of the next future years if any. There are provisions under the law related to carry forward and set off the losses in future for prescribed number of years. The provisions also highlight the fact that these losses can be carry forward and setoff only when the income tax returns are filed on or before the prescribed due date under the law. Where the tax returns are not filed on or before due date the opportunity of carry forward current losses to be set-off against future respective applicable head of income or gains is also lost.
6. Impact on loan applications and Credit cards – The Income Tax returns act as a document where the financial creditworthiness is determined in the cases of loans and credit cards. The ITR shows the flow of income as well as the transition of income over the years making the financial institutions and banks access the financial standing and position of the person or business who has applied for loans or credit cards as the case may be. Thus whether you apply for home loan, personal loan or any other loan as well as credit cards the ITR is required generally as a mandatory document along with such applications. The failure to file tax returns leads to issues in the matter of loan and credit cards also.
7. Failure to get Business Funding – There are many small and medium businesses and self employed individuals, who are looking for expansion of their businesses or say financial activities and are in need of funds for the same. The income tax returns are required to seek such funding from the financial institutions as well as banks. The tax returns act as a financial comprehensive document lead to measurement of profitability as well as revenue generated by the businesses or even self employed professionals over the period of time as well as current year. The inability to produce tax returns due to non-filing of the same leads to failure to get funds from the banks as wells as financial institutions.
8. Rejection of VISA applications – While applying for visas for the major global countries, the immigration authorities require the individual to submit their income tax returns along with visa application forms. The tax returns are not only a legal document confirming your stable financial reputation but as well as proof of financial ties to the home country. It is among the mandatory document to be submitted for visas approvals and failure to submit will be seen as financially unreliable and non-compliant.
9. Risk of Notices as well as Best Judgments Assessments under IT Act – In the digital times, tax authorities uses the advance IT systems as well as data analytics to track transactions above the prescribed limits. Where the tax returns are not timely filed or are not filed in such cases, the department can issue notices. The failure to submit the response to the department may lead the tax assessments under the Best Judgment Assessments. Under this the department based on the information available with them will assesses the tax liability and total income and compute tax liability giving credit of any tax paid and will sought the balance of tax liability.
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