What Are The Consequences Of Not Filing An ITR?


Filing an ITR can feel like a huge task at times, but not filing it can be a bigger issue. Everyone needs to understand the importance of filing of ITR, and if it is not filed what consequences they might attract. This article will act as a light for you to never miss your ITR filing, and we hope it helps in increasing your knowledge about the tax laws of India.

Importance Of Filing ITR

For several reasons, Income Tax Return (ITR) filing is crucial in India. Here are 10 succinct justifications emphasizing its importance:

  • Legal Compliance: The Income Tax Act of 1961 makes filing an ITR mandatory. Penalties and legal repercussions may follow non-compliance.
  • Avoid Penalties: Fines can be avoided by timely filing an ITR. Tax authorities may levy fines and interest fees for late or non-filed ITRs.
  • Tax Refunds: Filing an ITR enables people to request tax refunds if they have overpaid taxes or qualify for tax deductions, which lowers their overall tax obligation.
  • Developing your Financial Credibility: Consistently filing your ITR shows that you are a responsible financial person, which might help you when you seek loans, visas, or other financial activities.
  • Meeting Visa Requirements: When applying for visas or resident permits, several nations need income tax reports as proof of financial stability.
  • Reduction in Tax Liability: Losses that can be carried forward must be reported on an ITR to offset them against future income and lower future tax obligations.
  • Easy Loans: When determining whether a loan or credit card application is eligible, lenders frequently need an ITR as proof of income.
  • Business Necessities: For those who are self-employed or in business, completing an ITR is necessary to keep accurate financial records, get financing, and build trust in the industry.
  • Compliance: Individuals with high incomes are required to file ITRs even if they have no tax liabilities (their income must be above the stipulated threshold). If you don't, you could face consequences and might have to pay penalties.
  • Contributing to National Development: By giving the government the money it needs to finance social welfare programs and infrastructure development, filing an ITR is an act of responsible citizenship that contributes to the growth of the country.

How To Check If Income Tax Returns Is Filed Or Not?

You can use these procedures to see if your Income Tax Return (ITR) has been filed in India:

  1. Visit the Income Tax Department of India's official website at www.incometaxindiaefiling.gov.in.
  2. Using your user ID (PAN) and password, access your account or create a new one.
  3. After logging in, click on "View Returns/Forms" from the menu. After you click, a drop-down menu will appear.
  4. Choose the assessment year for which you want to check the status of your ITR from the drop-down menu.
  5. After choosing the evaluation year, a list of different forms will appear. Find the form you need to file your ITR, such as ITR-1, ITR-2, etc.
  6. It will display the status of your ITR file when you click on the form number. If it has, the status will read "ITR-V Received" or "ITR Processed." If nothing has been filed, the status will read "Not Filed."

Legal Consequences

According to the Income Tax Act of 1961, fines may apply to an individual or company that fails to submit their ITR by the deadline. Depending on the circumstances and Act requirements, these penalties may change. Here is a list of legal consequences and punishments you might face:

234 F: Fees for late filing (Section 234F): If a person fails to submit their income tax return by the deadline, they may be required to pay a fee. The late filing charge is now allowed to be:

a. Rs. 5,000 if the return is submitted after the due date but before December 31 of the assessment year (for the assessment year 2022–23, the average due date is July 31, 2022).

b. Rs. 10,000 if the return is submitted after the assessment year's December 31.

The maximum late filing cost is limited to Rs. 1,000, nevertheless, if the person's total income is less than Rs. 5 lakh.

234 A: If a person fails to file their income tax return by the deadline, they may be required to pay interest on the unpaid tax balance (Section 234A). From the due date to the actual filing date, interest is assessed at a rate of 1% per month, or part thereof.

270 A: India's Income Tax Act, Section 270A, addresses fines for under and incorrectly declaring income. A penalty may be imposed on a taxpayer by this section if it is discovered that they underreported their income or provided inaccurate financial information on their Income Tax Return (ITR). A proportion of the unreported income or the quantity of inaccurate information is used to determine the penalty amount. The fine might be anything between 50% and 200% of the tax due on the unreported income. The penalty, however, can be lessened if the taxpayer offers a convincing justification for the under- or incorrect reporting.

271 H: Penalties for failing to file an ITR are covered by Section 271H of the Income Tax Act. This provision states that a person or an organization may be required to pay a fine if they fail to submit their ITR by the deadline. The fine may be as much as Rs. 10,000. The maximum fine is instead decreased to Rs. 1,000 if the taxpayer's total income is under Rs. 5 lakhs. It's crucial to remember that the penalty is assessed in addition to any interest or other repercussions that might occur as a result of the ITR's non-filing.

Reputational And Professional Consequences

In India, there are several reputational and professional repercussions for failing to file an Income Tax Return (ITR). Here are some possible consequences apart from legal consequences, financial penalties, difficulty in obtaining loans, etc., that might affect your reputation and profession too:

  • Limited Career Opportunities: Background investigations and employee verification procedures are carried out by many organizations, particularly bigger businesses, and government agencies. A red flag during such checks may be the non-filing of an ITR, which could impact your professional reputation and constrict your options for employment or career progression.
  • Increased Tax Authority Review: If you frequently fail to file your ITR, the tax authorities may review it more closely. This may lead to thorough investigations, audits, and prospective tax assessments, which may result in further fines and legal repercussions.

Penalties And Interest

In India, there may be fines and interest charges levied on an individual or entity who is supposed to file an ITR but does not do so by the deadline. Section 234 of the Income Tax Act of 1961 specifies that the fines and interest are applicable.

If you fail to submit your ITR by the deadline, the Income Tax Department may impose a penalty. The following is the late filing penalty:

  • People whose combined income is up to 5 lakh rupees: The penalty is INR 1,000 if the return is submitted after the deadline but before December 31 of the applicable assessment year. The fine rises to INR 10,000 if the return is filed after December 31.
  • For people whose total annual income exceeds 5 lakh rupees: If the return is submitted after the deadline but before December 31 of the applicable assessment year, there is a 5,000 rupee penalty. The penalty doubles to INR 10,000 if the return is submitted after December 31.
  • For companies: When a return is filed by a company after the due date but before December 31 of the applicable assessment year, there is a 5,000 rupee penalty. The penalty doubles to INR 10,000 if the return is submitted after December 31.

In addition to the fine for submitting a return late, you may also be subject to interest under Sections 234A, 234B, and 234C of the Income Tax Act if you owe taxes and don't pay them by the deadline. The amount of interest charged is based on the amount of unpaid tax and the length of the payment delay.

  • Section 234A: From the day the return is scheduled to be filed until the day it is filed, the amount of tax that is still owed bears interest at a rate of 1% per month or part of a month.
  • Section 234B: Interest is levied if, after the financial year, you have not paid at least 90% of the assessed tax debt. From the beginning day of the assessment year (i.e., April 1) to the date of actual payment, an interest rate of 1% per month or a fraction of a month is applied.
  • Section 234C: Interest is assessed on the amount of the shortfall or delays if the advance tax was not paid in installments by the specified due dates. Typically, the interest rate is 1% each month or fraction thereof.

Ineligibility For Financial Benefits

Failure to file an income tax return (ITR) may make you ineligible for some financial benefits. Many nations, including India, have laws requiring the submission of ITRs as proof of income and tax compliance. Your eligibility for financial benefits may be impacted in the following ways if you don't file an ITR:

  • Tax refund claims: You must file an ITR to make a tax refund claim if you have overpaid taxes or are otherwise entitled to one. Your refund could be lost if your ITR isn't filed on time.
  • Loan and credit approvals: When a person applies for a loan or credit facility, financial organizations frequently request verification of income and tax filings. Lack of ITR filing may make it challenging to submit the required documentation, perhaps leading to loan application denial.
  • Government perks and subsidies: If you have not submitted your ITR, you may not be eligible for certain government benefits and subsidies. To assess eligibility for many government programs and initiatives, individuals must submit tax returns as verification of their income. You can lose out on these rewards if you don't file your ITR.
  • Statutory compliance: Failure to file an ITR may be construed as a violation of tax regulations, which may result in fines and other legal repercussions. Additional financial obligations, like fines and interest fees, may come from this.

Impact On Financial Transactions And Loan Approvals

You may experience several issues with financial transactions and loan approvals if you fail to file your income tax return (ITR).

First off, to determine your trustworthiness, financial institutions like banks frequently want verification of income and tax returns. Lenders find it difficult to ascertain your income and assess your potential for repayment in the absence of ITR. Without proof of income, you could not be eligible for loans or credit cards, which might make them difficult to get.

Second, ITR is a key document for confirming the authenticity of your sources of income. Financial institutions may become distrustful of you if you don't file an ITR since it raises questions about the legitimacy of your income. They might see it as an effort to hide income or engage in tax evasion, which would call for more examination and possibly result in loan applications being denied.

Therefore, ITR reporting is crucial for efficient financial operations as well as for building a reputation with lenders.

Immigration Issue

The concerns that could develop if an ITR is not submitted are outlined in the following points:

  • Applications for immigration and visas: Failure to submit an ITR could raise questions about a person's capacity to support themselves or their dependents, which could lead to delays or rejections in the visa or immigration process.
  • Proof: Tax returns are a crucial document to use as evidence of one's earnings and employment history. People could find it difficult to demonstrate their income and work without a filed ITR, which could impair their eligibility for some immigration programs.
  • Immigration law compliance: Failure to comply with tax laws, such as neglecting to file an ITR, may be construed as a breach of immigration laws. Some nations have laws that provide authorities the power to refuse admission, revoke visas, or even start deportation proceedings against people who don't pay their taxes.
  • Background checks and character evaluations: A pattern of tax law violations, such as failing to file an ITR, might raise questions about a person's moral character, honesty, and devotion to the law. This can affect their immigration application or lead to further scrutiny throughout the evaluation process.
  • Access to benefits and services: The availability of certain benefits may be restricted if an ITR is not filed because tax returns are frequently required to establish eligibility or compute entitlements. Health care services, social security benefits, financial aid for education, and other things may be impacted.