What Happens if You Don’t File Your ITR on Time?

Filing the Income Tax Return (ITR) on time is an important responsibility for every citizen. The taxes you pay help the government develop the country by improving and maintaining essential infrastructure and public services and making citizens’ lives easier. Filing your tax return is beneficial for various reasons, but not filing can lead to serious penalties.

So why is it important to file ITRs? What are the consequences of not doing so? And what is the last date for filing ITR for Assessment Year 2024/25? Let’s find out!

Why is it Compulsory to File ITRs?

It’s important to file ITR because:

• You are legally obligated to – If your gross annual income exceeds the basic exemption limit, you must file an ITR under the Income Tax Act, 1961.
• You can be penalised – You may be wondering, “What happens if I don’t file ITR?” In that case, you can open yourself up to a series of legal consequences. The Income Tax Department will impose fines and also charge interest on the amount due. They may also give you notices and take legal action.
• ITRs help you claim refunds – When tax is deducted at source, the only way to recover the excess amount you’ve paid is by filing your ITR.
• ITR can verify your income – Salaried individuals have salary slips for income verification, but for self-employed individuals and freelancers ITRs can act as an official income statement.
• Foreign/High-value transactions – Under Section 281 of the Income Tax Act, involvement in high-value or foreign transactions such as asset transfers requires you to have a tax clearance certificate or ITR.
• Visa and loans – If you are applying for a visa, you are required to submit the ITRs of the previous three years. Similarly, an ITR can supplement your loan application by showcasing your income stability and financial credibility to banks.
• Carry forward losses – If your business or investment incurred a loss in a given year, you can carry the loss forward to the next year to reduce your taxable income.

But is it compulsory to file itr? Well, filing your ITR is only compulsory if your gross income exceeds the basic exemption limit. Under the old tax regime, the basic exemption limit is Rs 2.5 lakh for individuals below 60, Rs. 3 lakh for individuals between 60 to 80 years (senior citizens), and Rs. 5 lakh for individuals above 80 (super senior citizens). The basic exemption threshold under the new tax regime, however, is Rs 3 lakh regardless of age.

Also Read: What is Tax Planning – Objectives, Types and Process

What Happens if You Don’t File ITR?

If you are asking yourself, “what happens if i don’t file itr?” following are some consequences:

Penalties

One of the biggest consequences of not filing an ITR is penalties. According to the Income Tax Act, one can be penalised in a number of ways:

• According to Section 234F, failure to file an ITR before the deadline can result in a late fee of Rs. 5,000.
• If your annual income is less than Rs. 5 lakh, however, the late fee is Rs. 1,000.
• Under Section 234A, one is also required to pay an interest on the amount of tax payable. An interest of 1% per month is charged from the due date of filing the ITR until the ITR is actually filed. For example, if you owe Rs. 80,000 taxes in a particular financial year, and file your taxes 6 months late, the interest payable would be Rs. 4,800 (1% of Rs. 80,000 per month for 6 months). So the longer you delay filing your ITR, the higher the penalty will grow.
• As per Section 271H, you may have to pay a fine between Rs. 10,000 to Rs. 1 lakh if you fail to file your TDS (Tax Deducted at Source) or TCS (Tax Collected at Source) returns on time. And a daily penalty of Rs. 200 per day may also be levied till you file your ITR.

Prosecution

The penalty for not filing itr at all can be severe and even lead to prosecution. If an individual’s tax liability exceeds Rs. 25,000, they have to pay a fine and can be imprisoned for a minimum of six months up to 7 years. If the tax liability is less than Rs. 25,000, the individual faces imprisonment of 3 months up to 2 years along with a fine.

No Tax Refunds

If you’ve paid more taxes than you owe, you are eligible for tax refunds. However, you can only get these refunds when you file an ITR.

Can’t Carry Forward Any Losses

If your business or investment incurs losses in a financial year, you can use these losses to offset against any other income you may have during that year, and thus reduce your overall tax liability. On top of that, you can carry forward these losses to future years and set them off against those profits, which will reduce your tax liabilities in those future years. 

Here’s a scenario – Suppose Raheem owns a business which makes a net loss in the financial year. He wonders, ”what if i don’t file itr this year?” If Raheem decides not to file his ITR, he will face some problems. The first consequence is that he will forfeit the opportunity to carry forward these losses to offset future profits, which could reduce his tax liability in future years when his business makes a profit. Secondly, he also risks penalties and interest charges from the Income Tax Department.

Makes You Ineligible For Loans And Visas

Previous years’ ITRs are essential documents when you are applying for visas and loans because they show your financial history and income stability. If you don’t file your ITR, your applications can be rejected.

Also Read: Who is Required to File Income Tax Return And Why?

What is the Last Date of Filing ITR?

The last date of filing without any late fee for Financial Year 2023/24 (Assessment Year 2024/25) is July 31st 2024 if you don’t have an audit case. This date is applicable for taxpayers in the individual, Hindu Undivided Family (HUF), Association of Persons (AOP), Body of Individuals (BoI), etc categories. Here is a list of deadlines for other categories:

• For businesses requiring audit – 31st October 2024
• For businesses not requiring audit – 31st July 2024
• Revised Return – 31st December 2024
• Belated/Late Return – 31st December 2024

It’s a good idea to take advice from a professional when filing your ITR. A tax advisor can help you file your taxes accurately and on time, so you can avoid any fines or penalties. Advisors can also help you save as much of your hard-earned money as possible, and even make a personalised plan that will allow you to maximise your tax savings in the future. They can recommend tax-saving investments that are aligned with your financial goals, situation, and risk tolerance, which will not only allow you to take maximum advantage of tax deductions and exemptions but will also bring you closer to realising your financial dreams.

Get in touch with a qualified tax advisor today!