If you are salaried, your employer deducts the TDS every month from your salary based on your total income, income tax regime opted for, deductions availed, income tax slab, etc. If your employer has deducted the TDS as per your taxable income, it doesn’t mean you don’t have to file your Income Tax Returns (ITR).
You may have earned some additional income during the financial year, like interest from the bank, capital gains from investments, etc. You need to declare income from your salary and other sources in your ITR and pay the tax, if any. If you delay filing the ITR or don’t file the ITR, there will be consequences. Let us discuss some of these.
Interest on default in filing ITR
Under Section 234A, an individual has to pay interest on the outstanding income tax amount if the ITR is filed after the due date or the ITR is not filed. Simple interest at the rate of 1% on the outstanding tax amount is payable for every month of delay from the due date.
Fee for not filing ITR
If an individual is required to file ITR but fails to do so by the specified date, then they have to pay a fee (penalty) under Section 234F as follows:
- If the total income of the individual does not exceed Rs. 5 lakhs, the fee payable is Rs. 1,000
- If the total income of the individual exceeds Rs. 5 lakhs, the fee payable is Rs. 5,000
The last date for filing ITR for individuals is 31st July 2023.
Notice from the Income Tax Department
If you don’t file your ITR by the specified date, you will get a notice from the Income Tax Department (ITD). You will have to reply to the notice along with filing your ITR. If you don’t comply with the notice, the ITD can initiate legal proceedings against you.
Delay in getting ITR
If the Tax Deducted at Source (TDS) and/or Tax Collected at Source (TCS) is more than the income tax payable, you are eligible for an Income Tax refund. To claim the refund, you have to file your ITR. If you delay filing your ITR, there will be a delay in getting your refund. However, if you don’t file your ITR, you will not get your refund.
Carrying forward capital losses
You can set off capital losses against capital gains. You can set off the capital loss against a capital gain in the current financial year or carry forward the capital loss for setting it off against capital gains in subsequent years. In either case, you must file your ITR within the specified date. Without filing the ITR within the specified date, you will neither be able to set off the capital loss in the current financial year nor carry forward the capital loss to the subsequent financial years.
Difficulty in getting loans, life insurance, etc.
If you are self-employed, your ITR plays an important role in getting loans. The bank uses the ITR as an income document to decide whether you are eligible for a loan and for what amount. Similarly, the eligibility for credit cards and the limit can be assessed based on the ITR information. For term life insurance applications also, the life insurance company can use the ITR to determine whether you are eligible for the life insurance cover you have applied for.
If you are self-employed and delay filing your ITR or don't file your ITR, you will face difficulty getting loans, credit cards, life insurance, etc. The ITR is also required for visa processing when you apply for it. Similarly, the ITR can be used as a valid income document for other purposes.
Make sure you file your ITR before the 31st of July deadline
If you have received your Form 16/Form 16A and other required documents, you should file your ITR without waiting for the 31st July 2023 deadline. If you wait till the end of July, there will be heavy traffic on the Income Tax website, which may slow things or throw up technical errors.
By filing ITR on or before time, you can avoid the penalties and interest on the outstanding income tax amount. If you have a refund, it may get processed quickly if you file your ITR in the first half of July or earlier. Also, you can use your ITR for loan, credit cards, and life insurance applications.
Gopal Gidwani is a freelance personal finance content writer with 15+ years of experience. He can be reached at LinkedIn.