The penalty for late filing is actually not much. But it is important that the details are all there and without error
As we all know, the last date for filing the tax return is July 31. What if you were unable to file your return in time? Even then, there is no cause to panic — this year, though July 31 was the due date, one can still file one's return till March 31, 2012. What is important is not this due date of July 31 but the fact that the return should be filed with accurate information, where neither the income is inadvertently under-reported nor any expense or deduction overlooked due to lack of time. If any tax is due, the tax payer should arrange this without delay; the return can then be filed in due course.
In terms of repercussions, an interest of one per cent per month will be levied on any tax due. Also, the tax official has the option of imposing a penalty of Rs 5,000 on account of the late submission. So, say you are a salaried employee who has not filed his or her return on time. However, the tax due from you has already been deducted at source in the usual course. In this case, the maximum downside for a late filing would be the Rs 5,000 penalty. Since the tax due from you has already been paid (by way of the TDS), there would be no liability on account of interest. That is levied only if you owe any tax to the government.
However, there is another drawback of not filing the tax return in time. If you have any business loss or capital loss (short-term or long-term), this cannot be carried forward for set-off against future income if the return is not filed on time. So, if you file your return after July 31 but before March 31, 2011, it would be a belated return, but without penalty imposed. If this is filed after March 31, 2011, a penalty of Rs 5,000 is leviable. Interest will be payable in all cases if any taxes are due. So, all in all, it is always advisable to file your tax return on time. However, a tax return is always better belated than inaccurate.
One example of haste causing waste is in the case of Rajiv (name changed on request) who was more interested in filing the return on time even after knowing about the belated return facility. For 2009-10, he had earned long-term capital gains from the sale of property. In his hurry to get the return filed, he simply forgot that the expenses related to improvement of property can also be indexed with the cost. So, he paid more than what was actually due. Had he waited and reviewed the computation, he could have saved a neat packet. So, ensure the return is correct and complete and only then arrange to get it filed.
We list some common exemptions and deductions with potential for oversight or error by the taxpayer:
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HRA: House rent allowance and home loan provisions are two different issues as far as the Income Tax Act (ITA) is concerned and one does not influence the other. So, you may own a flat or any number of flats, either in the same city you work in or anywhere else in India or abroad — this will, in no way, influence the HRA deduction you are entitled to. Conversely, notwithstanding the amount of HRA you receive, your home loan deductions on the equated monthly instalments (EMI) for the house you have bought or intend to buy will not be affected.
Section 80C: >Generally, Sec 80C is synonymous with deduction available in respect of payment of life insurance premiums or investments in PPF, NSCs and ELSS funds. However, did you know that tuition fee paid to any school or college for the full-time education of up to two children is also allowed as a deduction? Also, investments in Nabard bonds or the Senior Citizens Saving Scheme and Post Office Term Deposits have been added to the list of eligible investments.
Regarding PPF, most know the deduction is available in respect of contributions made in the name of self, spouse or children. However, did you know the combined investment limit for yourself and your minor children is Rs 70,000? I have come across several investors who invest Rs 70,000 for themselves and additionally in the name of minor children. This is not allowed under the rules.
Housing finance: The principal portion of the EMI paid in respect of your house is deductible. However, to claim the deduction, the house needs to be owned for five whole years. If you sell your house in the interim, the earlier deductions claimed are to be added back to your taxable income in the year in which the house is sold.
Capital gains: The Securities Transaction Tax (STT) paid is not allowed as an expense in calculating your capital gain. Second, in respect of adjusting capital losses, note that any loss can be adjusted against capital gain income only and not against any other type of income. However, taxable capital gain may be adjusted against other losses such as business loss or loss under the head, house property. Even within the umbrella of capital losses, note that though short-term loss may be adjusted either against short-term gains or taxable long-term gains, any long-term loss can be adjusted against taxable long-term gain only. Unadjusted capital loss may be carried forward to be set-off against eligible capital gains for eight years. However, this facility is not available if the tax return is not filed within time.
Finally, for non-resident Indians (NRIs), in respect of capital gain income, the shelter of the basic threshold is not available. If Vikram, a resident Indian, were to sell his house and earn a capital gain of Rs 10 lakh and this gain was his only income, he will have to pay tax only on Rs 8.4 lakh (Rs 10 lakh minus the basic exemption of Rs 1.6 lakh). However, if Vikram were to be an NRI, he would have to pay tax on the full Rs 10 lakh.
In sum, whether you pay in time or belatedly, if you owe the tax to the exchequer, you have to pay it. There is no escaping this. Ironically, when you consider that a fine is a tax you pay for doing something wrong, whereas a tax is a fine you pay for doing something right.
The writer is director, Wonderland Consultants