Legal consequences of non-filing of Income tax return

September 29, 2017

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In this article, Munmun Kadam of Rajiv Gandhi National University of law discusses Legal consequences of non-filing of Income tax return.

Understanding Income tax with these five points

An income tax (IT) return is the tax form or forms used to file income tax with the Income Tax Department (ITD). It is usually a predefined worksheet where the income estimate details are provided and it is used to calculate the tax liability written in documents themselves.
The tax returns have to be filed at the end of every financial year. If the tax paid by a taxpayer had been in excess then he/she can claim a “tax refund” by specifically determining the calculations. It is a statement of earnings by various sources of income and thereon the estimated tax liability which is incurred by the taxpayer.
There is a specified time and date when before which the tax returns have to be filed. It is the reason that August and September are the busiest months for the Charted Accountants. While filing the actual, the total amount that should go to the government as income tax is calculated.
The various forms available for Income tax Return ranges from ITR1 to ITR7 and are used for different sources or category of income. It is observed that some Income tax forms are longer than the others and the others may require many disclosures of fact than the others such as balance sheets of profits and losses.
Income tax return filing as perceived by most Indian is a very sturdy task but it is not so because of the fact that government of India has taken measures such as the introduction of E-filing of Income tax return etc.

Did you forget to file your tax returns? Here is the solution

There are instances because of the much busier life we all are living many of us fails to file the Income Tax return within a prescribed period of time. Even after the due dates have been passed you can still file the Income Tax return. There is a provision in Income Tax Act for late filing of income tax return which is called belated return.

Understanding Belated returns

If the taxpayer fails to submit his income tax return:

On or before the due date mentioned u/s 139(1) or
If the income tax is not filed before the due date and the income tax officer had issued a notice u/s 142(1) directing the taxpayer to file his income tax return within a specified time in the notice and he has not filed the return as required in the notice.

He can still file the income tax return even after the due date. Such an income tax return filed after the due date is called belated return.

Belated return can be filed any time before the expiry of 1 from the end of the relevant assessment year or before the completion of assessment whichever is earlier. An example for this is: The filing of income tax return due date is 31st July 2014 to 31st September 2014 for the Financial Year 2013-2014 and the assessment year 2014- 2015.

If due to any reason the taxpayer has not filed the income tax returns, he can still file the return before the end of assessment year that i.e. 31st March 2016. However, in case you have not filed the tax return and the income tax officer have started conducting the assessment, the taxpayer can file his income tax return any time before completion of the assessment.

Consequences of non-filing of tax returns

There are many people who miss out the dates for filing the tax return or they simply don’t want to file their tax return and save their income. Also, everyone makes mistakes, as there are many people who simply forget it because of the hefty documentation and lowering their tax liabilities legally as much as possible. However, there are many legal consequences for non-filing of the tax returns on or before the due prescribed dates.

Penalty and Interest

If a person has not filed his income tax returns he/she will be issued notice u/s 142(1) for non-filing of income tax return if the income tax department feels it fit. Further, if the individual fails to furnish his income tax returns after the notice he will be penalized for the same. If there are any taxes which are unpaid, penal interest as per u/s 234A i.e. @ 1% per month or part thereof will be charged till the date of payment of taxes. Also Penalty of Rs. 5,000 may be charged. The penalty is not levied in all cases and depends upon the circumstances of the case.

For the Financial year of 2017-18 and onwards, a penalty of Rs 5,000 will be charged for returns filed after the due date but it should be before 31st December and if returns are filed after 31st December, a penalty of Rs 10,000 shall apply. However, the penalty will be Rs 1,000 for those with income up to Rs 5Lakhs.

Prosecution

The Supreme Court of India in its recent judgment (Sasi Enterprises V Assistant Commissioner of Income Tax criminal appeal No.61/2007) has categorically declared it is taxpayer’s liability to file a tax return and non-filing of the tax return is an action liable for prosecution. If the taxpayer does not pay the income tax return voluntarily as under Section 139 of the income tax act and does not pay even after issuing of notice as u/s 142 an148 of the Income tax act then the taxpayer can be prosecuted u/s 276CC of the Income Tax Act. This judgment by the Supreme Court is the firm reminder that the laws should not be seen as an empty formality and should be attended diligently. The Supreme Court has also held that in case prosecution proceedings are initiated, taxpayers have to prove the circumstances which prevented them from filing the I-T returns and also failing to prove they are liable for prosecution and penalty. The burden as to prove that he/she has not willfully exempted from filing the I-T return is on the Taxpayers altogether.

Concealment Penalty of Income tax Return

If you do not file a return, and there is assessable income, you are liable to a penalty for concealment of income which ranges from 100% to 300 %. It is mandatory on part of every individual to file the Income Tax Return and also the person will be penalized under section 234A of the Income Tax Act. Other than this the Income Tax Act also prescribes a penalty for the offense of concealment of the income and if a person does not pay or file his Income Tax Return he is in a way Concealing his Income which is further Penalized under Income Tax Act.

Delay in tax refund

There is an amount that the government of the country holds after the payment of tax returns also. So if a person is holding on the income tax return of the latest year he will be not be entitled to the Tax Refund of the previous year also. For e.g.: If a person has paid the extra tax than his income Tax return so the government would be returning the same which is called as Tax refund and if the person delays or not files the income tax return he/she will be forfeited the “Tax refund” for the previous Income Tax Returns.

No easy eligibility in loan applications from Banks

The basic need for all loan such as housing, business, car or personal loan is the record of last three years I-T return and it is also a declaration of your income. Before issuing the loan, banks want to be well aware of your financial capacity and your income details as shown by you in income tax returns. So it is mandatory for a person to file his/ her Income Tax Return regularly because of the fact that he/she would not be able to grab the facilities like loans easily because banks do not give loans without the statement of income by the person taking a loan. Banks won’t provide a loan if there is no proof of his/her income record for which banks require three-year Income Tax Return statement.

Decreased chances of obtaining visa outside India

There is a high possibility that a person applying for a visa outside India have to produce the records of the Income Tax Return of previous years to the latest years. The Visa authorities and the High commissioner of the various countries around India would ask the applicant to produce his/her Income proof and the best proof of Income in India is the records of his I-T Return. The people issuing Visa’s want to know if you are financially sound before they issue you a visa and for this purpose, they will rely on your ITR. If anyone wants to go abroad then he should file a genuine report and Use it to show your genuine source of incomes, because immigration officers give due weight to your annual income. If anyhow you are unable to produce even a single Income Tax return, this can reduce your chance to get the visa from the visa officer. The main purpose of the Income proof is that it is the officers want to know about the sustainability of the person in his own country because if he is not financially sound in his own country he may not be given the visa. So the genuine filing of the Income Tax return is necessary if a person is willing to go abroad.

No allotment of government tenders, registration on panels

The value of business profiles of various corporate agencies, contractors, professional service providers or individuals is dependent on the yearly income tax returns. Sometimes, this work is checked by the tender scrutiny committee and ITRs for five to seven years are considered to see whether the applicant has done work for that amount earlier. So if one wants to expand one’s business and obtain tenders from a government or private bodies, one needs to file regular returns every year.

Loss not to be Allowed to Carry Forward

Normally, if you file your return on time losses of this year can be set-off against the gain of forthcoming years. E.g. If you have business Loss this year, you can claim set off against business profit next year. But in case a person does not file his Income Tax Return on or before due date he/she will not be allowed to carry forward their losses.

References

Legal consequences of non-filing of Income tax return

Understanding Income tax with these five points

Did you forget to file your tax returns? Here is the solution

Understanding Belated returns