Late Filing of ITR

In his Budget Speech on 1st February 2017, the Finance Minister proposed to levy a fee in case of delayed ITR filing. This was subsequently introduced in the Income Tax Act through section 234F. This late filing fee is the most important reason for anxiety and anguish amongst taxpayers in this tax season. The Income Tax Department has wisely responded to such anguish by month long extension of the due date of filing ITR to 31.0.8.2018 from 31.07.2018. This article shall examine this issue and suggest a way to make it better and more equal.

The late filing fees explained

The late fee is charged under section 234F of the Income tax Act. It is placed at par with interest charging sections of the Income-Tax Act. This means the late fee is mandatory and not optional or discretionary. The late fee forms part of tax liability together with tax and interest computed at the time of filing Income tax return. This is applicable for returns filed for Assessment Year 2018-19 i.e Financial Year 2017-18 and onwards. The amount of late fee and it’s applicability for different taxpayers is as follows:
Is the late fee applicable in cases where the taxpayer is not required to file a return but has voluntarily filed his return?
The answer is NO. The fee is applicable only when a taxpayer is required to file a return of income but has filed the return beyond due date. This means if you are having income of more than Rs.250,000/- before claim of deductions then you are required to file return and if you file it beyond due date, late fee shall be charged. This shall be charged even if you had discharged all of your tax liability by paying advance tax or self assessment tax or TDS before the due date of filing return of income.

How is this fees recovered?

The late filing fee is recovered as a part of self assessment tax. Since self assessment tax is levied as per section 140A of the Income tax Act, this section is also amended to include word ‘fee’ therein. Suppose at the time of filing ITR beyond due date, self assessment tax is computed at Rs.10,000/-, interest under section 234A of the Act at Rs. 500/- and a late fees under section 234F is computed at Rs.5000/-then the total amount to be paid as self assessment tax under section 234A is Rs. 15,500/-(10000+500+5000).There is more to this. At the time of filing ITR, if the taxpayer pays lesser amount than Rs. 15,500/-, then that amount is first adjusted towards late filing fees, then comes the interest portion and the last to be adjusted is actual self assessment tax. Thus, if you pay Rs.7500/- against tax liability of Rs.15,500/-, then amount of Rs.5000/- is adjusted first towards late filing fees, then amount of Rs.500/- is adjusted towards interest and finally the remaining amount is adjusted towards actual self assessment tax.

Late filing fee is different than the earlier penalty

The late fee is not a novel provision to confront late ITR filers. The penalty provisions were contained in Section 271F of the Income tax Act and are deleted from this year. The comparison between section 234F and section 271F is given below:

Particulars Section 271F Section 234F
Scope Applicable to taxpayers required to file ITR but haven’t filed ITR before end of assessment year Applicable to taxpayers required to file ITR but have filed ITR beyond the due date of filing ITR
Quantum of penalty or fees (Rs.) 5000 If the ITR is filed before 31st December of that A Y, late fee is Rs.5000 or else it is Rs.10,000. In case of taxpayers having income less than Rs.500,000/- the late fees is Rs.1000/-only irrespective of the date on which ITR is filed after due date.
Operation Must be initiated through notice issued by Assessing Officer and levied through a separate order Automatic and mandatory (Non-discretionary)
Appeal Appealable No Appeal
Opportunity of being heard Yes. The taxpayer must be given opportunity of being heard before penalty is imposed No.
Recovery Recovery through separate demand recovery procedure The late fee is recovered as a component of self assessment tax while filing ITR

Is it possible NOT to pay?

Yes. In case of sufficient bona-fide reasons

No. It is mandatory.

Late filing fee for delayed TDS statements

Before introduction of late filing fees for ITRs, a similar late filing fee was introduced in Income tax Act from July 2012 for delayed filing of TDS statements by TDS deductors. In this case a fixed sum of Rs.200 for each day of such delay is imposed. The longer delay yielded larger amount of late fee from TDS deductor.

Late filing fee for ITR is justified

The income tax return must be filed before the due date. Since the law allowed filing of returns beyond due date without any penalty, return was delayed by large number of taxpayers. A sizeable portion of returns were filed beyond due date. Besides foregoing some of the benefits of filing ITR within time, there was no practical deterrence against delayed filing of return of income. Consequently, the sanctity of due date of filing of ITRs stood eroded.

The penalty provisions against delayed filing of returns proved inadequate in dealing with this issue. About 80% of returns are e-filed and are in custody of the Centralized Processing Centre (CPC), Bengaluru. This number for A Y 2016-17 stood at 4.21 crores as on 28.02.2017. These returns aren’t accessible at real time to Income Tax Officers (ITO) or Assessing Officers (AO) who are authorized to impose penalty. Further, the penalty proceedings are susceptible to endless dragging. Such a lengthy procedure for penalty of Rs.5000/- seemed unwarranted. The quantum of penalty did not inspire ITOs nor did it matter much to the taxpayer. All these factors together made the provisions as redundant ones.

The rampant delay in filing ITRs required mandatory measure so as to differentiate disciplined taxpayers from late filers. And the late filing fee rightly fills the deterrence gap around late filing of returns.

Arguments against the late filing fee

Since the introduction late filing fee, it is scrutinized closely for each of it’s merits and demerits. Such scrutiny serves to make it better and more equal. Few of such observations are:

  • The late filing fee is in fact a penalty and such penalty is levied without affording the opportunity of being heard. In case of genuine unavoidable reasons for late filing of ITRs, this is an unjust penalty unlike earlier provisions when penalty was dropped in case of genuine and unavoidable reasons for delay in filing returns.
  • There is no remedy against this penalty or fee since it is not appealable unlike the penalty order under section 271F of the Act.
  • The section 234F charges the same amount of fee on a person having income of Rs.500,000/- and a person with income in crores of rupees.
  • The late fee is charged even for a delay of a single day even after all the tax liabilities are discharged via advance tax, self assessment tax or TDS.

There is a room for betterment of the late fee provisions

This article has argued favorably for the late filing fee. However, certain arguments against such fee are worthy of merit. It is true that a taxpayer is charged the same amount of late fee of Rs.5000/- if the return is filed immediately on the next day of the due date or on 31st December of that year. This seems unfair. This may also increase the load on return acceptance systems since taxpayers tend to file returns on days approaching the due date or 31st December or 31st March of that assessment year.

The purpose of charging late fee is to ensure timely filing of income tax returns. It can be made better and more equal by charging the late fee commensurate with the period of delay in filing the ITRs. This ensures parity and fairness. This will ensure larger amount of late fee for longer period of delay. This will bring these provisions in line with similar provisions under section 234E of the Income tax Act which applies to TDS statements.

The author can be reached at jitsyadav@rediffmail.com