Why should one adhere to tax due dates?

The most expensive liability is Government dues! If you owe anything to them, pay it off. The late payment interest, penalty, late fees, etc., are at least twice the interest one pays on bank borrowings. Holding on to Government money does not make any commercial sense.

While filing Income Tax Returns, we come across many instances of non or delayed payment of taxes resulting in penal interests. So, the rule is to comply with the due dates.

Here are some areas worth looking at to earn the benefits:

Advance Tax

Will salaried employees also pay interest on Income Tax? Not on salary income, as they are subject to withholding taxes (TDS). If they have, say Interest income, then the banker deducts TDS at 10% on term deposits and no TDS on Saving Bank interest. This won’t cover the full tax liability if the taxpayer is in the higher tax slabs. Likewise, a whole lot of other income such as Rental Income, profit on shares trading, capital gain on Mutual Funds, dividend, etc., attract taxes, but most of them are not subject to TDS provisions.

Under the Income Tax Law, if a person has a tax liability of more than Rs 10,000 a year (except senior citizens not having professional income), then he is liable to pay Advance
Tax in four installments, i.e., before July 15, September 15, December 15 and March 15.

If the advance tax is not paid, then 1% interest per month is payable u/s 234C for deferment in instalment and 1% interest per month is payable u/s 234B if 90% of the tax is
not paid before the end of the financial year towards default in payment of advance tax.

Late fee for Belated filing

This is a lesser-known fact that if Income Tax Returns (ITR) is not filed within the due dates, u/s 234F, one has to mandatorily pay a late fee at the time of filing the return. For example, the due date for filing the ITR for FY 2019-20 was January 10, 2021, but one can file the belated return before March 31, 2021 by paying a late fee of Rs 1,000 in case the taxable income is below Rs 5 lakh and Rs 10,000 in case the taxable income is over Rs 5 lakh. Additionally, u/s 234A, interest at 1% is payable for the delay in filing the return.

Revision of ITR

There is a provision under IT Act to revise the ITR at a subsequent date, (to rectify mistakes, if any) if the return is filed within the due date.

Carry Forward of Loss

Similarly, Losses from business (except unabsorbed depreciation) or Sale of capital assets can’t be carried forward to the subsequent year to set off against future income, if the ITR is not filed within the due dates.

ETDS Return

Quarterly TDS returns have to be filed by the deductor of Tax. For example, any person who is paying rent or buys property from an NRI has to deduct TDS, pay and file the TDS return. Non-Compliance attracts a late fee u/s 234E of Rs 200 per day, every day during which the failure continues.

Response to Notices

If one fails to reply to Income Tax Notices, say, for scrutiny assessments, the department can finalise the tax liability as they deem fit, (usually unfavourable to the taxpayer) based on the information available with them, called as Best Judgment assessment. This apart, the taxpayer can also be fined for failure to respond to the Notices.

Invest in tax saving instruments

Section 80C provides tax exemption up to Rs 1.50 lakh if the individual or the HUF taxpayer invests or spends in the specified products before the end of the year. For FY 2020-21, such investments are to be done before March 31, 2021. If one misses this date, he loses the benefit.

Property Tax

The Municipal authorities offer a discount for those owners who pay the Property Tax within the due dates set by them. So, paying early fetches incentives!

Insurance

It is a well-known fact that driving a vehicle with no insurance or expired insurance is illegal. Further, to renew the policy after the expiry date, inspection of the vehicle is mandatory! Not just that, if the renewal is done after 90 days, be prepared to lose the No Claim Bonus (NCB) benefits. Renew by the click of a button without any toil, if done within the expiry date. Those who have failed to pay Electricity bills within the due dates will encounter the
threat of disconnection of electricity.

Interest on borrowings

The late payment of EMIs will attract a penalty. Defaulting will drastically reduce credit score (CIBIL Score) and impact the ability to receive future credit and may even lead to seizure of the property.

A casual approach towards due dates and non-compliance will either deprive the benefits or burden the pocket! Contrarily, adherence to due dates will not only save money but also
earn peace of mind. The choice is yours!

(The writer is Chartered Accountant and Registered Valuer, Bengaluru)