Penalties applicable for Filling Late Return of Income Tax and how to avoid it?

  • A taxpayer has to comply with ‘paying’ income tax and ‘filing’ income tax returns every year. Though it is important to file the tax returns within the due date, this doesn’t mean that he cannot file his income tax returns, in case he has missed filing it, due to some unforeseen reason.
  • But if a person has missed the deadline, he might have to face some penal consequences and might even get a notice from the IT department anytime. In addition to it, there are other consequences of filing belated taxes which may affect the total tax liability of the taxpayer. The Income Tax Act has prescribed certain penalties for late filing of tax returns.

Interest for Default on Payment of Advance Tax:

  • If a taxpayer’s tax liability is expected to exceed Rs. 10,000 for the financial year, he is required to pay an advance tax in 4 instalments during the same financial year. These instalments are due on 15th June, 15th September, 15th December and 15th March. If the amount paid in the form of advance tax falls short of final tax liability or if he has not paid the advance taxes at all, the taxpayer can pay the balance amount by way of self-assessment tax any time after the close of financial year. In case the person fails to make the payment of advance tax or self-assessment tax within the due date, he will be required to pay a penal interest which is levied under 3 different section of the I-T Act.
    1. Interest for deferment of Advance Tax u/s. 234C: This interest is payable @1% p.m. for the delay in payment of advance tax on a quarterly basis. This is payable on the amount of quarterly shortfall, starting the date on which the advance tax was due.
    2. Interest for default on payment of Advance Tax u/s. 234B: This interest is payable @ 1 % per month or a part thereof on the amount of tax due as on 31st March of the financial year till the final payment.
    3. Interest for delay in filing tax return u/s. 234A: This interest is payable for not filing the tax return before the due date. It is payable on the net tax due as on 31st March of the financial year. This interest is chargeable from the first day (1st August for individuals in general) following the due date (i.e.31st July).

How to Avoid it:

Tax filing cannot be done unless a person deposits his tax liabilities to the Government on regular basis. He can, therefore, pay his taxes within the due date and file his tax returns on time. This will save him from paying additional interest on the same.

Late Filing Penalty/Fees:

  • If a person fails to furnish his returns even after the expiry of one year from the financial year for which income tax return is to be filed (i.e. before the end of the relevant assessment year), the Assessing Officer may impose a penalty of Rs. 5,000 on him, under section 271F. This penalty is, however, not levied automatically and is a sole decision of the tax officer. But this position will change starting the F.Y. 2017-18. As per the budget 2017 if a person fails to file the tax return by the due date of 31st July he will have to pay a compulsory late filing fee of Rs. 5,000. Further, if he delays filing the return beyond 31st December of the assessment year, he will be liable to pay a late filing fee of Rs. 10,000. But in the case of small taxpayers with the income up to Rs. 5 lakh maximum fees shall not exceed Rs. 1,000. It is important to note here that the discretionary penalty is now replaced by mandatory late filing fees. Therefore, delaying the return filing can hurt you badly.

How to Avoid it:

Under the existing provisions, this penalty is levied very rarely. In case the Assessing Officer decides to levy this penalty he gives a chance to the taxpayer to clarify and explain the reason for the delay in filing tax returns. If the taxpayer contacts his tax officer and provides him sufficient convincing reason for the delay in filing his tax returns he can avoid the penalty. But under the proposed amendment the AO will have no discretion to waive off the late filing fees and the only way to avoid it is to file the tax return within the due date.


  • In rare and extreme cases, if the Assessing Officer finds out that the taxpayer has willfully failed to furnish the tax return in due time, the person might be subjected to prosecution proceedings. The penalty for this case may be any one of the following
    • If the tax payable is less than Rs 25 Lakh, the taxpayer may have to face a minimum imprisonment of at least 3 months to 2 years
    • If the tax payable is more than Rs 25 Lakh, the taxpayer may have to face a minimum imprisonment of 6 months to 7 years

How to Avoid it:

A person should stay clear from such legalities and file his tax returns as early as possible. These instances might be rare but they can be imposed once the Assessing Officer finds the person guilty of avoiding tax payment intentionally. Generally, the officer gives the assessee sufficient notice and time to comply with the filing requirement, and the taxpayer should not ignore any such notice from the IT officer. It is advisable that he pay his taxes and file his return within the time allowed by the officer.

Other Consequences:

  • Apart from these penalties, there are some other consequences of late filing of tax return. He may not be able to revise the return in case of any error or omission, he may have to forego the losses that he could have carried forward, losing the interest amount that a taxpayer may earn on the refund under section 244A is one of the major disadvantages of filing late tax return. Therefore to avoid any complications the taxpayer should always try to file his return within the due date or if he misses it for any reason then should try to file the return at the first available opportunity.

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