Late Filing Consequences: Penalties And Impact On Taxpayers

How many people on average ask for an old tax regime? – asking is considered as (opting) and question considered from the perspective of individuals?
A significant number of individuals are opting for the old tax regime for taking advantage of various exemptions and deductions available in the old tax regime surpassing the overall tax reduction offered by the new tax regime sans such exemptions/deductions. 

What are the common deductions and credits that taxpayers can claim on their income tax returns?
Some common deductions that taxpayers claim in order to reduce their income tax liability under the old tax regime:

1. Investment/expenditure linked deductions u/s 80C which covers life insurance premium, tuition fee for education of children, investment in 5 years tax savings FD, investment in ELSS, stamp duty paid on the purchase of a flat, principal amount of loan taken for the purchase of house etc.;

2. Deduction for Mediclaim;

3. Exemptions for HRA from salary income;

4. Donations made to approved trusts/ institutions;

5. Interest paid for the purchase of the house;

6. Leave travel allowance

How does the process of e-filing an income tax return work?
There are basically two modes for filing an income tax return viz. online mode and offline mode. Under online mode, the taxpayer is required to login to his registered e-filing account and fill in the necessary schedules for the income tax return. The taxpayer is required to save the details entered on a regular basis since the data entered may be lost in case the same is not saved and the session times out.

The other mode is an offline mode wherein the taxpayer is required to download the JSON utility or Excel utility (software) from the income tax portal. This utility replicates the schedules of the income tax return. The taxpayer should fill the schedules and generate the JSON file which is then required to be uploaded to the income tax portal. Besides these utilities, some private companies also provide software through which the JSON file can be generated and uploaded to the income tax portal.

Are there any penalties or consequences for filing an income tax return late?
A taxpayer is expected to file his return of income within the due date applicable to him. Failure to do so results in several consequences, some of which are mentioned hereunder:

1. Late fee of Rs 5,000/-;

2. Additional interest @one per cent p.m. or part thereof on the outstanding tax dues;

3. Denial of carry forward of losses, if any, under any head. However, losses under the head “House Property” can be carried forward even if the return is filed belated;

4. For persons who not having a business or profession, a new tax regime can be opted only when the return of income is filed within the due date;

5. Interest on refund arising out of TDS/ TCS/ Advance tax is allowed from the date of filing return, as against from 01st April of the assessment year, in case if filed within the due date;

What options are available for individuals who are unable to pay their income tax liability in full by the filing deadline?
Any person who has filed his return, without discharging his tax liability in full, will have to pay such taxes, along with applicable interest within 30 days of service of intimation u/s 143(1). Failure to do so will attract additional interest @ 1% p.m. thereafter. It would also empower AO to treat the person as an assessee in default, levy a penalty and initiate recovery proceedings.

Are there any specific considerations or guidelines for self-employed individuals when filing their income tax returns?
The applicable income tax return for self-employed individuals is ITR-3. If their turnover of business or profession exceeds the prescribed limit then such individuals are required to get their books of accounts audited by a CA and furnish the audit report at least 1 month before the due date of return filing. Such individuals engaged in business or profession can also opt for presumptive taxation if their turnover is lower than prescribed limits. 

How long should one retain their income tax return records and supporting documents?
The income tax law empowers AO to reopen any case up to 3 years from the end of AY without any threshold, whereas escapement of income estimated to be more than Rs. 50 lakhs, up to 10 years from the end of AY. Accordingly, it is advisable to retain relevant records and supporting documents for a period of up to 10 years from the end of AY.

Can income tax returns be amended after they have been filed and if so, what is the process for doing so?
Once a return has been filed, a taxpayer may file a revised return, in case he observes any omission or wrong statement therein, revised return is required to be filed by 31st December of AY. For this purpose, the taxpayer is required to select the filing section under “Part A – General” of the ITR as “139(5) – Revised Return” and enter the date of filing and acknowledgement number of the original return of income. 

In case the time limit for filing a revised return has also expired, the taxpayer still has the option to file an updated return in form ITR-U. It is to be noted that such a return can be filed after payment of additional tax @ 25%/ 50% of income tax and interest liability, depending upon the period within which the same is filed. However, such an updated return cannot be filed if it is the return of loss or it reduces the tax liability or increases the refund as compared to an earlier return.

Are there any specific deductions or credits available for homeowners on their income tax returns?
Homeowners get a deduction of interest paid on housing loan while computing their income under the head “House Property”. This is restricted to INR 2,00,000 in case the home is used by the taxpayer for his own occupation. Also, Homeowners can claim an additional deduction of interest of Rs. 1.50 lakhs if he has acquired a house below Rs. 45 lakhs and the loan is obtained from 1st April 2019 to 31st March, 2022.  Further, the principal repayment of the housing loan is eligible for deduction u/s 80C, which is restricted to a maximum of Rs 1,50,000. 

Apart from this, in cases where the property is rented out, taxpayers get a deduction for interest paid on amount borrowed for the purchase of a house and a flat deduction of 30 per cent of their rental income.

How are capital gains and losses reported on an income tax return?
Capital Gains under income tax are computed as under:

Capital Gains =    Full Value of Consideration (-)

                              Expenses incurred wholly and exclusively in connection with transfer (-)

                              Cost of Acquisition/ Indexed Cost of Acquisition (-)

                              Cost of Improvement/ Indexed Cost of Improvement

These 4 amounts are required to be reported in different parts of Schedule CG of the income tax return, based on the nature of the capital asset (like immovable property, listed shares, unlisted shares etc.) and period of holding (Long term gain or Short term gain). These amounts are required to be aggregated for a particular nature of long-term or Short term assets while reporting in the income tax return. 

Further, capital losses from short-term assets can be offset by capital gains arising from any other asset. However, capital losses arising from long-term assets can be offset only from capital gains from any other long-term asset. This set-off is computed by the return filing utility in part E of Schedule CG.

Are there any tax benefits or deductions available for individuals who contribute to international retirement accounts, such as IRA or 401(k)?
For Indian Tax residents, there is no benefit for making contributions in international retirement accounts as against available for making contributions in PF, PPF and other retirement schemes covered u/s 80C. However, residents who have opened retirement accounts in any foreign country when they were non-residents and have now returned to India, have the option to offer accrual on such contributions at the time of withdrawal or redemption. To claim this benefit, the taxpayer is required to file Form 10-EE before furnishing a return of income.

What is the difference between a tax refund and a tax liability on an income tax return?
Tax refund arises when the prepaid taxes, in the form of TDS, TCS and advance tax, exceeds the total tax and interest liability payable by a taxpayer. On the contrary, when the prepaid taxes do not cover the total tax and interest liability, there arises a tax liability which the taxpayer is required to pay as self-assessment tax.