ITR: What happens if you don't file? Here are 9 things you need to know

If your salary, rent or interest income is beyond the tax exemption limit, you have to file income tax return (ITR). This is the general understanding. But what if you don’t file ITR at all or file it late? Apart from penalty and late fee, there are consequences you must know about.

1) Payment of late fee

The due date to file the ITR is July 31 each year. If you file it after the due date, you will have to pay Rs 5,000 late fee. For the financial year 2020-21 (and assessment year 2021-22), the due date has been revised to September 30, 2021. If you file your ITR after December 31 during the relevant assessment year, the penalty will increase to Rs 10,000. However, if your total income does not exceed Rs 5 lakh, the maximum penalty could only be Rs 1,000.

2) Penalty on not filing ITR

You did not file the ITR, knowingly or unknowingly. Income Tax department later finds out that you were liable to pay the tax. Now a penalty will be levied on the tax liability. If non-payment was unintentional, it would be 50% of the tax payable. If it was intentional, it would be 200% of the tax payable. This is over and above the total tax liability.

3) Interest payment

Apart from penalty, you also have to pay 1% interest on the tax liability as per Section 234A of the I-T Act. The interest starts immediately after the due date till the taxes are paid. The longer you delay the payment, the higher will be the tax liability.

4) Prosecution and fine

You may have to face imprisonment if your tax liability is more than Rs 10,000. “If tax evasion is worth Rs 25,000 or more, you may be sentenced an imprisonment between six months and seven years. In other cases (between Rs 10,000 and Rs 25,000), it could be up to two years. The court may levy an additional fine as per its discretion,” says tax expert Balwant Jain.

5) Difficulty in getting loan

If you approach a bank for home, car or personal loan, they ask for your income tax return filings of previous years. This is important to ensure your capacity to repay the loan, in the absence of which they may not extend you the loan.

6) Higher interest in case of business loan

The ITR becomes even more important in case of business loan. You will not be given the loan or the rates could be much higher if you do not produce ITR of previous years. “If you have a running business loan and overdraft, etc, you need to submit the proof of having filed the ITR each year,” says Jain.

7) Losing carry forward benefits

One can set off house property, capital and business losses against gains incurred. You may carry forward such losses for eight years immediately succeeding the year in which the loss is incurred.

If you don’t file your ITR by the due date, you lose the right to carry forward your losses. Even if you file the ITR by the last date or during the relevant assessment year, you will still not be able to carry forward the losses. You must file the ITR before the due date to take advantage of it.

8) TDS deduction at double the rate

The assessment year 2021-22 has a new TDS rule. “If you did not file the ITR for last two years and your TDS was more than Rs 50,000 in a year, the TDS will be deducted at double the rate this year,” cautions Jain.

9) Not receiving genuine refunds

People below the income tax exemption limit or those who are not working avoid filing ITR. However, banks, mutual fund houses, your employer and few other organisations are bound to deduct the TDS. Since these people are not liable to pay the tax, but TDS has been deducted, it will be returned if they file the ITR. Not filing ITR makes them lose on tax refunds.