Know What Will Happen if I Don't File ITR
19 April, 2023
Tax filing is the process of submitting your tax return to the government, either through a paper or electronic process. Tax filing is vital as it helps the government collect revenue to fund public development, services, and infrastructure. It also ensures taxpayers pay their share of taxes and do not unfairly benefit from public services. It is a legal requirement for individuals and businesses to file their taxes yearly, and failure to do so can result in penalties and fines.
If you think filing taxes is unimportant or do not file them annually, here are some situations you may face.
Penalty under Section 234F
One of the first things all working professionals should know is that under Section 139 of the Income Tax Act, it is mandatory to file Income Tax Returns (ITR) every year within the due date prescribed under Section 139(1). While the due date for filing IT returns has historically been July 31, this date could be subject to change. Failing to meet this deadline could result in a penalty of ₹ 5000 if the return has been submitted after the due date under Section 234F. The penalty is reduced to ₹ 1000 if your total income is under ₹ 5 lakh for the concerned year.
Losing out on tax returns
You may receive a refund based on your total income, deduction, and exemptions that you qualify for when you file an income tax return. Several sections of the IT Act offer deductions and exemptions that help lower your tax liability. For instance, you can claim a tax deduction of up to ₹ 1.5 lakhs per annum on investments made under Section 80C. Section 80D offers tax deductions of up to ₹ 1 lakh for a health insurance plan for yourself, your spouse, children, and parents in a financial year. Section 80G offers deductions on donations made to certain charitable institutions, subject to qualifying limits. All of these and more help you save money. Not completing the tax filing process risks missing out on being able to claim these deductions, which ultimately means you lose money.
Shorter time to update income tax returns
The later you file your income tax return, the longer it might take to define your tax liability for the financial year. The Income Tax department processes and checks each tax return thoroughly. Any delay in the tax filing process results in a delay in receiving the tax refund.
Interest on the tax amount
In case the tax filing is delayed, the government charges a 1% interest per month under Section 234A. This can further increase your tax liability and hamper your budget and future financial goals.
Difficulties in other aspects
Apart from the penalties, interests, and delay in receiving your refund, you may also suffer in other aspects. Here are some examples:
Loan eligibility: When you apply for any loan, the lender carries out several checks and verifications to determine your repayment capacity and financial well-being. One of the things checked – apart from your income and other debt – is your tax return. Filing ITR on time indicates financial discipline and soundness. This presents a favourable picture to the lender, encouraging banks like HDFC Bank and other Non-Banking Financial Companies (NBFCs) to offer you loans at reasonable interest rates.
Visa applications: Many countries ask for your tax returns when issuing a visa. Not filing for returns could make getting a visa to some countries more challenging, which can impact your travel plans. If you often travel for work, delayed tax filing can also come in the way of your professional growth.
Tax loss harvesting: Tax loss harvesting allows you to offset your investment gains by harvesting your investment losses. Simply put, you can reduce your tax liability on capital gains if you have suffered capital losses. However, you must report all relevant capital gains and losses in your income tax return to benefit from this provision. Failed or delayed tax filing takes away your chance to lower your taxable income through loss harvesting.
Imprisonment: If you fail to file your income tax return, technically, you could face imprisonment for a period ranging from six months to seven years, as per the rules of Section 276CC of the Income Tax Act. However, under the amendment by the Finance Act 2022, there will be no such prosecution with effect from AY 2022-23 if you are able to file an updated return within the time provided in Section 139(8A). The due date for filing a revised return for AY 2022-23 (FY 2021-22) is March 31, 2025.
Not filing your taxes can have serious consequences, such as penalties, losses, and even imprisonment. It can also prevent you from receiving certain benefits. So, make sure you file your taxes on time every year to avoid any hassles. HDFC Bank simplifies this process by making it possible to file taxes through NetBanking in just a few easy steps. You can also refer to the Income Tax Department’s resources or reach out to a tax professional if you need help with tax filing.
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*Terms and conditions apply. The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. You are recommended to obtain specific professional advice from before you take any/refrain from any action. Tax benefits are subject to changes in tax laws. Please contact your tax consultant for an exact calculation of your tax liabilities.
