Is it mandatory to file an ITR? Yes, Any individual who generates a taxable income must file an income tax return on time as it helps the government in maintaining records of taxpayers. Any failure in filing an ITR results in penalties and problems later on as it can become a case of tax evasion as well. Additionally, it also hampers the chances of getting a loan, property registration, or a visa for travel purposes.
As per the Income Tax Act, the below-mentioned entities must file the ITR in India:
- People whose gross total income exceeds Rs. 2.5 lakhs
- Senior citizens whose gross total income exceeds Rs. 3 lakhs
- Super senior citizens whose gross total income exceeds Rs. 5 lakhs
- Firms or companies must file their ITR irrespective of their returns
- Resident individuals who possess asset or financial interest in an entity located outside India
- International firms or companies doing business in India
- Individuals who want to demand an income tax refund or carry forward a loss under a head of income
- Non-resident Indians who have made over Rs. 2.5 lakhs in India
- Residents & signifying authorities in a foreign account
- Individuals who earn income from assets or property that comes under a research association, news agency, political party, educational institution, hospital, infrastructure debt fund, or any authority or trust.
CONSEQUENCES OF NOT FILING AN ITR
If ITR is not filed within the due date then the taxpayer still has the option to file the returns later. This filing is known as ‘Belated Returns’.
Penalty or Late Fees
Non-filing of ITR results in a penalty. If a person earns above Rs. 5 lakh, then he/she will have to pay a penalty of Rs. 5,000 if ITR is paid after the due date. However, if the taxable income is below Rs. 5,00,000 then the penalty amount is Rs. 1,000.
Loss of Specific Benefits
Due to the non-filing of the returns within the prescribed deadline, the taxpayer would not be allowed to claim the benefits of certain deductions and carry forward the losses other than the loss from house property loss.
Interest on the Tax Amount
In case of failure to pay the ITR on time, the taxpayer pays an interest of 1 per cent per month until the ITR is filed. The stated interest is payable on the tax payable after decreasing the tax deducted at source, tax collected at source, and other tax credits available.
A case of Tax Evasion
Non-filing of ITR may also reflect in the minds of income authorities that the motive was tax evasion. Such defaulting taxpayers can face prosecution under Section 276CC of the Income Tax Act, which may result in harsh imprisonment for a term ranging from a minimum of 3 months to 2 years along with a fine, depending on the amount of tax evaded.
Reduced Time for Updating ITR
If a taxpayer commits a mistake while filing the returns, there are certain rules to be followed to make the required changes. Earlier, taxpayers had a 2-year window to resubmit ITRs, now the window has been reduced to one year by the government. Therefore, the sooner you file the returns, the longer is the window to review & revise returns and rectify the errors if any.
THERE ARE EXEMPTIONS TOO!
Under Section 119 (2) (b) of the Income Tax Act 1961, the authority body can consider any application or request for an exemption, deduction, or other relief even after the ITR filing date has expired. If the reason behind the non-filing of the ITR stands valid in the eyes of the concerned authorities, the taxpayer may apply for condonation relief by presenting appropriate supporting documents as evidence.
BENEFITS OF FILING AN ITR
Serves As An Income Proof
For salaried employees, form 16 issued by the employer acts as income proof. However, for self-employed taxpayers, an income tax return serves as authentic income proof with a detailed breakdown of income and expenses during a financial year.
For Quick Visa Processing
The immigration authorities request copies of tax returns filed in the past when individuals apply for a Visa to take up a job or conduct business visits outside the country. Filing Income Tax returns ensures smooth and quick processing of VISA applications as the immigration authorities consider the individual as tax compliant. Certain embassies of countries like Canada, the US, the UK etc are very particular about the tax return records of an individual.
For Easy Approval of Loans
While applying for a home loan, ITR is one of the most crucial documents that a lender asks to process the home loan application. If the individual is unable to provide such a document, it will result in the non-acceptance of the application.
For Claiming Tax Refund
Sometimes TDS gets deducted from the salary even when the total taxable income is less than the basic exemption limit and the taxpayer has a nil tax liability for that year. In such cases, the taxpayer claim the TDS refund for which filing an ITR is compulsory.
To Carry Forward The Losses
A taxpayer can carry forward the losses only if he/she files the ITR before the deadline. If not paid on time, he/she can’t carry forward any loss under the head of ‘profits and gains of business’ or capital gains.
Though there are alternatives in case you miss filing ITR due to several reasons, it is recommended to file returns on time to avoid unwelcoming repercussions.