What happens if you don't file your Income Tax Returns (ITR)?

In India, individuals or businesses earning money or profiting from various sources are required to pay taxes to the government. The tax system is based on a slab structure, which underlines the basic exemptions and taxation limits for various income groups. As per the Income Tax Act, sources of income are categorised under five heads, detailed in Section 14 of the Income Tax Act.
 

• Income from Salary: If you are a salaried individual, your income will fall under this category. In addition to salary, pension, leave encashment, gratuity, commission etc. are also considered under this head.

 

• Income from House Property: Section 22 to 27 of the Income Tax Act deals with this head. If you are earning any income from letting out your property, the same will be taxable under this head. However, if you are utilising the property for business purposes, it will be taxed under a different head.

 

• Income from Business and Profession: Any income earned through manufacturing, trading, professional firms such as self-employed CAs, architects etc. or other businesses falls under this category. Furthermore, any bonus, profit, or salary you receive as a partner in a partnership firm is included under this head.

 

• Income from Capital Gains: Any loss or profit that you make by selling or transferring assets comes under this category. Here, the assets mean real estate property, shares, mutual funds etc.

 

• Income from Other Sources: If you make money other than from sources specified in the previous four heads—such as lottery winning, dividend income, and gifts received—it is put under this category.

 

Who Should File ITR?

In India, the following are the individuals, a group of individuals, or entities that are required to submit the Income Tax Return form. 
 

• Individuals whose income is beyond the exemption limit
• Hindu Undivided Family (HUFs)
• Association of Persons (AOP)
• Body of Individuals (BOI)

 
However, keep in mind that the deadline for filing an ITR varies depending on whether you are an individual, a business (requiring an audit), or a company (requiring a TP report).
 

Is it Mandatory to File ITR?

 
Yes, tax filing is mandatory if your annual income exceeds Rs 2.5 lakh. Failure to pay your taxes attracts punishment for tax evasion in India. 
 

What If I Don't File ITR?

 
There is not just a penalty for late filing of ITR, but tax defaulters may also face a slew of other complications. Some of them are: 
 

1. Penalty Related to Income Tax

   • Section 234A: The section applies to individuals who file their returns after the deadline and also have unpaid taxes. Under this section, there will be a monthly penalty of 1% on the outstanding due amount.
      
   • Section 234F: Individuals who file their returns beyond the due date are subject to the provisions of the above section. As per Section 234F, if you file your return on or before 31 December of the assessment year, the penalty will be Rs 5,000. A penalty of Rs 10,000 will be charged if the return is filed between 31 December and 31 March of the assessment year.
      
   • Section 271A: The provisions of this section will apply to those who under-report their taxable income. The penalty will be equal to half of the tax due on the unreported income.
    
   • Section 271H: Under this section, you will be penalised if the TCS and TDS are not filed within the prescribed time limit. The fine can range between Rs 10,000 and Rs 1,00,000. The preceding fine is in addition to the Rs 200 per day fee imposed under Section 234E.

2. Delayed Refunds

   Delayed filings lead to delayed tax refunds. Even after you have received your refunds, the government has the right to withhold a certain amount of money. Furthermore, if you do not file your ITR, the refund for the previous year shall be forfeited.
    

3. Loss Set-off is Not Allowed 

   If you don't submit your ITR, you won't be able to carry forward your losses and offset them against future gains. However, carry forwarding is allowed if the loss is related to house property. 
    

Other Complications Related to Income Tax Returns (ITR)

 

1. Non-payment of Tax on Lottery Winnings

   Any winnings above Rs 10,000 from crossword puzzles, lotteries, and other similar games should be paid to the winner only after the necessary tax has been deducted. However, if the winning is split between cash and in-kind, and the cash winning is less than Rs 10,000, payment can be made without deduction of taxes. According to section 271C, a penalty equivalent to the unpaid tax amount is imposed on such earnings. 
    

2. Accepting or Repaying Loans in Non-acceptable Modes

   Section 269SS and 269T of the Income Tax Act specifies that you should use demand drafts, account payee cheques, or bank ECS for accepting or repaying the loan amounts above Rs 20,000. If you do not comply with the aforesaid rule, you will be levied a penalty equal to the amount of the deposits under Section 271D. In Section 271DA, the same penalty will apply to debt repayment.
    

Also Read: Guide to e-Filing or Online Filing your Income Tax Returns
 

Benefits of Filing Income Tax Return (ITR) on Time

 
Filing ITR on time not only portrays you as a responsible citizen but also provides you with many other advantages.
 

1. Loan Benefits 

   Income Tax Returns (ITR) serve as proof of income. Financial institutions require your copy of ITR to conduct a risk assessment and process your loan further. This document is crucial if you require a personal loan, used car loan, or loan against property. 
    

2. Income Proof

   The Income Tax Returns serve as proof of income. The ITR is more important than Form 16 since the information provided in ITR is more detailed.
    

3. Obtaining Visa 

   Several countries require ITR to process your visa. ITRs assist embassies in verifying your identity and ensuring that you are self-sufficient and have not evaded any taxes. Some of the nations that ask for ITR details include Canada, Australia, the UK and US.  

Should I File ITR Even If My Income is Not Taxable? 

 
Tax filing is not necessary if your annual income is below Rs 2.5 lakh. However, it is still recommended that you file a nil return. If you do so, you can enjoy the following perks:
 

• ITR serves as proof of address and income and helps in quick visa processing.

 

• Nil returns help you keep track of your finances and safeguard you during the scrutiny by the income tax department.

 
Also Read: All You Need To Know About the New Income Tax Return Forms
 

To Conclude 

 
Filing tax returns may appear to be a complex and time-consuming process but it is mandated by law. Failure to comply with the tax provisions will attract punishment for tax evasion in India. So, bear the above-mentioned repercussions in mind the next time you purposely postpone or default on a tax payment.