Why should you file income tax returns on time?

Sitting at your desk and checking your salary slip – seeing so much of your hard earned money being deducted towards income tax is not the most pleasant feeling. If this was not enough, you also need to file your income tax returns before August 31, 2015. You must be wondering if all your income is from salary and your employer is already deducting TDS (tax deduction at source), why should you bother about filing income tax returns? In this post, we will attempt to clarify some of these doubts.

Who needs to file income tax return?

As an individual, you are required to file annual income tax returns if your gross total income – before any deductions u/s 80C to 80U – during the previous financial year exceeds the minimum exemption limit specified in the annual budget by the central government. For the current year, the exemption limit is Rs. 2,50,000 for non-senior citizens (below 60 years of age), Rs. 3,00,000 for senior citizens (above 60 years but less than 80 years) and Rs. 5,00,000 for very senior citizens (above 80 years).

What are the deadlines for filing income tax returns?

For any financial year, you (or any individual not subject to tax audits) are typically required to file income tax returns (for the previous financial year) by July 31. However, the deadline for filing returns this year (for FY2014-15 i.e. April 1, 2014 to March 31, 2015) has been extended to August 31, 2015. You need to file your return before August 31, 2015 to qualify your returns as “Filed in time”. If you miss this deadline, you can still file your returns on or before March 31, 2016 after payment of any interest as applicable u/s 234 A, B and C. This is the last date before which your returns can be filed with payment of interest and without any penalties.

Why do you need to file income tax returns?

You may not have disclosed certain income to your employer. For instance, you may have chosen/forgotten to disclose your rental income to your employer. You are required to disclose all sources of income to the tax authorities and pay tax as per extant tax laws. You can disclose such information while filing income tax returns.

You may have missed out on submitting requisite proofs (life insurance premium receipts etc) or may not have made such investments by the time you were required to submit investment proofs with your employer. In such a case, your employer would have deducted additional tax from your salary. You can claim such additional tax deductions from the tax authorities by filing income tax returns.

To sum up, you file income tax return to claim extra tax deducted or to disclose additional source of income to the tax authorities. Even if these cases do not apply to you, it is mandatory to file income tax if you are not exempt from filing income tax returns (as discussed in one of the sections above).

Why do you need to file your income tax returns on time?

1. Unless you file your returns within the statutory timeline prescribed u/s 139 (August 31, 2015 for this year), you are not eligible to revise your income tax return. For instance, if you made a mistake in submitting your return, you cannot revise it. You may have submitted some wrong information or you may have missed to claim some exemptions or rebates while computing your tax liability. In such case if you have not filed your returns in time – you cannot revise your return or claim anything later on.
2. If you have certain capital losses (e.g. loss booked on sale of shares), then you must file your returns within time prescribed u/s 139(1) to set off and carry forward such losses as per section 80 of the Income Tax Act, 1961. For example, say for FY2014-15 you have booked a short term capital loss of Rs. 100,000/- on trading shares. If you file your returns before August 31, you can carry forward your losses for the next year (up to 8 years). If you make short term gain of Rs. 150,000 in FY 2015-16, then you only have to pay tax on capital gains of Rs. 50,000 (Rs 150,000 – Rs 100,000). Hence, your tax liability will fall to ~Rs 7,500 (short term gains on equities are taxed at flat 15%). Had you not filed your returns on time, your tax liability would have been ~Rs 22,500. You can see the benefits of filing returns on time. However, losses from house property or unabsorbed depreciation can be set off and carried forward even if you fail to file the return before the initial deadline. You can carry forward capital losses up to a maximum of 8 years from the financial year in which you incurred such loss.
3. You may face a penalty if the returns are filed after the end of the assessment year, in our example March 31, 2016 is the last date of filing returns for financial year 2014-2015. The Assessing Officer can impose a penalty of up to Rs. 5,000/- under section 271F if you file the return after March 31, 2016.

In case no tax liability arises, then there is no interest or penalty for filing returns up to March 31 of the next year. In case there is any tax liability, you need to pay interest on the outstanding tax liability @ 1% per month. Filing income tax returns on time is a duty of every responsible citizen. Filing returns on time can not only help avoid penalties but also help save on taxes in case you need to carry forward capital losses. So, don’t miss the deadline. File your income tax returns by August 31, 2015.

Manan is a Chartered Accountant and works with a leading private bank. He advises PersonalFinancePlan on matters of taxation. He can be reached at tijoriwalamanan[AT]gmail.com. You can read more about him here.

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