Missed ITR Filing Deadline: Implications and Next Steps

As we all are aware, that government have not extended the deadline for income tax return filing any further for the financial year 2023-24 or we can say Assessment year 2024-25. As the Individual taxpayers are not required to undergo tax audit of their accounts provided their gross receipts from business or profession exceeded limits of 1 crore or 50 lakhs respectively, that was the reason, they were expected to get their return filed on or before July 31, 2024.

However, in case they missed this deadline, they can still get their return filed, which is called a belated return by December 31, 2024. In this article I am going to cover the implications of missing the deadline, the penalties which are required to be paid by assessee, and the restrictions to remain under the new tax regime

Yes you read it right, now to file belated return, the assessee is ineligible to opt for old tax regime in any case and claim any section 80 deductions, except those which are allowed by the law

Now let’s discuss about the penalties and interest which will be imposed in case of Belated ITR

Filing a belated ITR leads to many disadvantages, for the assessee such as imposing of penalty fee, that means a penalty of Rs 5,000 is imposed for filing a belated return, in case an assessee have gross total income of Rs. 5,00,000 or above, but in case he have income in between Rs. 2,50,000 to 5,00,000 then he will be imposed a fee of Rs. 1000

Let’s summarise it with the help of table:

Second disadvantage of filing belated return is penal interest that means as per the Section 234A of the Income-tax Act, 1961, the interest is charged on the tax amount which have not been paid by the assessee from the due date of filing original return i.e. 31^st of July 2024 until the date of actually filing the belated return.

Hence the assessee apart from above late fees or penalty, will also have to give an Interest that will be charged on the tax which is unpaid at a rate of 1% per month or part of the month from the due date (July 31st) until the date of payment

Example, Kunal have Gross total income of 10,00,000, he filed his ITR on 7^th September 2024, now he will be exposed to late fees or a penalty of Rs. 5000 along with interest @1% each for august and September i.e 2%

So instead of Rs. 62400 he will have to pay 62400+5000+(62400*2%)= Rs. 68650 (after roundoff) resulting in excess payment of Rs. 6248 dueto delay.

Thirdly a significant drawback of getting your belated tax return filed is the restriction on switching between tax regimes. Starting August 1, 2024, taxpayers filing a belated return are ineligible to opt for the old tax regime. The new tax regime is the default, resulting in disallowance of enjoying benefits of all the available deductions and exemptions that are available under the old tax rules.

Example: Let’s discuss it’s impact on tax liability

Consider Mr. Naveen Paul, whose gross taxable income is Rs 13 lakh. As per the old tax regime, he is eligible to claim deductions and exemptions amounting to Rs 3.75 lakh, reducing his taxable income to Rs 9.25 lakh. His tax liability would be Rs 1,01,400 (including Health and education@4%) as per the old regime.

However, according to the new tax regime, his liability increases to Rs 1,14,400 (including Health and education@4%) plus a Rs 5,000 penalty plus 1% interest per month or part of the month in case there is any pending tax payment before filing the belated Tax return as per Section 234A of Income tax act. Therefore, Mr. Naveen would incur an additional expense Rs 18,000 dueto filing of a belated return i.e. ITR after 31^st July 2024.

What about filing an Updated ITR?

If an assessee even fail to file belated Income tax return on or before December 31, 2024, the only option that will be left with the individuals will to file an updated return in form ITR-U. This option involves higher penalties such as penal interest of 25-50% of the tax dues amount, also additionally Penalty Fee up to Rs 5,000 will be imposed, as per the table above.

Filing an updated Return may lead to even higher tax payments compared to filing a belated ITR under the new tax regime.

What are the legal consequences of not Filing ITR?

Failing to file an Income Tax Return have a several serious legal and financial consequences, such as:

Penalties in form of Late Filing Fees, i.e If an assessee fail to file your ITR by the due date, then he will be exposed to late filing fees, As I discussed earlier as per Section 234F of the Income Tax Act, a fee upto Rs. 5,000 is applicable if the return is filed after the due date but before December 31^st of the assessment year i.e. 31^st December 2024. If the return is filed after that, the penalty increases to ₹10,000. However, for taxpayers with a total income of up to Rs. 5 lakh, the fee is limited to Rs. 1,000.

Interest Charges under Section 234A may also be applicable on the unpaid tax amount. This interest is calculated at 1% per month or part of a month on the amount of tax due.

Also If assessee fail to file your ITR on time, he may not be allowed to carry forward certain losses (e.g., business losses, capital losses) to subsequent years, resulting in higher tax liability in future years.

The main issue is prosecution, that means a Legal Action will be taken by the Income Tax Department, which have the authority to initiate legal proceedings against individuals who fail to file their ITR. This can lead to prosecution under Section 276CC of the Income Tax Act, also the consequences of prosecution can be severe. If convicted, the assessee can face rigorous imprisonment, which can range from three months to even seven years, depending on the amount of tax evaded. Additionally, fines could also be imposed. Third one is a criminal conviction for tax evasion can result in a criminal record, which can have long-term implications on an individual’s personal and professional life, including difficulties in securing employment or travel visas.

Additional Consequences

Can the impact on Loan Approvals arise?

The answer to this question is yes, financial institutions often require proof of ITR filings when processing loan applications. Failure to file an ITR can negatively impact your creditworthiness and hinder your ability to secure loans.

Conclusion

Missing the ITR filing deadline may lead to significant financial and legal problems. Taxpayers should file a belated return on immediate basis to avoid any further issues. Penalties and restrictions under the new tax rules can be harsh, so staying informed and following tax regulations is crucial. This helps prevent financially painful mistakes and ensures smoother financial management.