What Will Happen if I Do Not File My Income Tax Return (ITR)?

What is an ITR and What is the importance of filing ITR?

An ITR is a document that needs to be filed with the Income Tax Department of India as a declaration of an individual’s income and assets. This information is used to compute the income and the tax liability of an individual. In India, you must file an ITR under the following circumstances:

1. If your total income exceeds the tax-free threshold based on your age.
2. When seeking an income tax refund.
3. If you've earned from or invested in foreign assets during the fiscal year.
4. For companies or firms, regardless of profit or loss.
5. If you've incurred losses in business/profession or under capital gains and wish to carry them forward to subsequent years.
6. If you've deposited a cumulative amount of Rs 1 crore or more in one or more current accounts with a bank.
7. Upon depositing over Rs 50 lakh in your savings bank accounts.
8. If your foreign travel expenses exceed Rs 2 lakh.
9. When yearly electricity expenditure surpasses Rs 1 lakh.
10. If tax deducted at source (TDS) or tax collected at source (TCS) exceeds Rs 25,000 (or Rs 50,000 for senior citizens).
11. When business turnover exceeds Rs 60 lakhs.
12. If income from your profession exceeds Rs 10 lakhs.

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Why is the importance of filing ITR?

Legal Compliance

• Filing ITR is mandatory if your income exceeds the basic exemption limit under the Income Tax Act.
• Non-compliance can attract penalties, interest, and, in some cases, prosecution under Section 276CC.

Claiming Tax Refunds

• If excess tax has been deducted or paid, filing ITR is essential to claim a refund.
• Without filing, the refund process cannot be initiated.

Proof of Income

• An ITR serves as a documented proof of income for various purposes, including visa applications, loan approvals, and financial transactions.
• It demonstrates transparency in your earnings and tax compliance.

Carry Forward Losses

• Filing ITR allows you to carry forward certain losses (e.g., business or capital losses) to offset against future income, reducing your future tax liability.

Avoid Penalties and Interest

• Filing late or failing to file attracts penalties under Section 234F and interest under Sections 234A, 234B, and 234C. Timely filing helps avoid these costs.

Facilitates Financial Planning

• Filing ITR helps you keep track of your income, expenses, investments, and tax liabilities.
• It enables better financial planning and helps identify areas to save tax legally.

Easier Loan and Credit Approvals

• Banks and financial institutions often require ITRs for processing loans or credit card applications, especially for higher limits.
• A consistent ITR record boosts your creditworthiness.

Contributing to Nation-Building

• The taxes you pay contribute to the country’s development, funding infrastructure, education, healthcare, and welfare schemes.
• Filing ITR is a step towards fulfilling your civic duty.

For Non-Residents and NRIs

• Filing ensures compliance with tax laws and helps avoid legal complications for Non-Resident Indians (NRIs) earning income in India.

Simplifies Tax Notice Handling

• Filing ITR regularly makes it easier to handle tax notices, as you have clear records of your income and taxes paid.

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Consequences of Not Filing ITR

If you fail to file your ITR by the due date i.e. (31st July of the relevant assessment year), you might have to pay a penalty for not filing an ITR. Given below are the consequences of not filing ITR -

Penalty and Interest

If you miss the deadline to file ITR by 31st July, you get the option to file belated return but this comes with penalty.

Under section 234F, a penalty of Rs.1000 is leviable on income upto Rs.5 lakh and a penalty of Rs.5,000 is levied on income above Rs.5 lakh.

Under section 234A, failing to file income tax return attracts interest at 1% per month on the outstanding tax amount. This interest amount is calculated from the date when the ITR is filed to the due date of filing the ITR.

Penalty u/s 271H

In addition to the above, if you fail to file your TDS/TCS returns, you might have to pay a penalty ranging from Rs.10,000 to Rs.1,00,000. It might also attract a penalty of Rs.200 per day till the date TDS/TCS is paid.

Note: If you fail to file your ITR by the due date, you can file a belated return. However, it might come with notices, late fees, and penalties.

Given below are the penalty provisions -

• If your total income is less than or upto Rs.5 lakh, then the maximum penalty levied on you will be Rs.1,000.
• Similarly, a penalty of Rs. 5000/- will be charged on income above Rs.5 lakhs if you were required to file an ITR, but fail to do so. by the due date, i.e., 31st July or 30th Sep. This penalty will be applicable only if you file till 31st Dec.
• Don’t miss out on the last date to file ITR for FY 2024-25. File ITR Now with experts and say ‘No’ to penalties and notices.

Loss of Benefits

• Carry Forward of Losses: If you have incurred business or capital losses, you cannot claim them against future profits if you haven't filed your ITR on time. This can disadvantage you in future tax filings.
• Processing of Refunds: If you haven't filed your ITR, the processing of any tax refunds you may be eligible for can be delayed or even rejected.

Proof of Income

Unlike salaried workers with regular pay slips, freelancers and self-employed individuals rely on tax returns to provide the most dependable verification of their income. Without filing an ITR, you might face difficulties if you need to submit income proof for some reason.

Loan and Visa Application

When applying for a loan or visa, lenders and embassies often require the last three years of Income Tax Returns (ITR) to verify your financial standing and eligibility. Submitting these documents demonstrates your financial history and strengthens your application. If you don’t file your ITR, these applications may get rejected.

Prosecution for not Filing ITR

Not filing your Income Tax Return (ITR) can lead to serious consequences, especially if you owe more than Rs. 25,000 in taxes. In such cases, you could face imprisonment for 6 months to 7 years and a fine. Even if you owe less than Rs. 25,000, failing to file can still result in imprisonment for 3 months to 2 years and a fine.

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What are the Due Dates for Filing Income Tax?

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