What Happens When You Don't File Your ITR?

As per the Income Tax Act, it is mandatory to file your income tax returns on time. Failure to do so can attract hefty penalties and you could face a hard time getting a loan, visa approval, etc. On the other hand, timely filing of your Income Tax Return (ITR) opens the door to various advantages. 

Let us understand the consequences of late filing your ITR.

Budget 2025 Update

• Under section 139, it was proposed to increase the time limit for filing of Updated Return from the existing 24 months to 48 months from the end of the relevant assessment year.
• The rate of additional tax payable on updated return filed after expiry of 24 months and upto 36 months from the end of relevant assessment year will be 60% of aggregate tax and interest payable.
• The rate of additional tax payable on updated return filed after expiry of 36 months and upto 48 months from the end of relevant assessment year will be 70% of aggregate tax and interest payable. 
• Further, it was proposed that no updated return can be filed by a person for whom a notice to show-cause under section 148A was issued after the expiry of 36 months from the end of the relevant assessment year.

What is the Importance of Filing ITRs?

As a responsible and compliant citizen, you must file tax returns. The following is the list of advantages of doing so:

• When you apply for a loan to buy a house, car, or for medical treatment, the past three years' tax returns are necessary.
• Submitting your tax return helps in getting quick visa approvals. Some foreign embassies like Australia, UK, USA, and Canada require previous year's tax returns for visa processing.
• As per Section 281 of the Income Tax Act, if you are involved in foreign or high-value transactions, such as transferring assets, you need to provide a tax clearance certificate (ITR).
• Filing tax returns allows you to claim tax refunds if you are eligible.
• Tax return documents are important as they serve as proof of your income and address. They provide more accurate information about your earnings, including salary, compared to Form 16.
• Income Tax Returns for the last few years act as a vital piece of information if you intend to take on any government projects. Filing ITRs regularly makes you eligible for tender applications.
• Filing ITR assists companies and individuals in avoiding tax penalties and interest payments.

What are the Consequences of Not Filing Income Tax?

If you are wondering “what happens if I fail to file the ITR on time” take a look below. Here are certain consequences of late filing of ITR:

1. Penalty charges

One of the major consequences of late filing of ITR is that you will have to pay a penalty. Under Section 234F, if you fail to file your ITR within the due date, a late fee of Rs 5,000 will be applicable. However, if your annual income is less than 5 lakh, the late fees would be limited to Rs 1,000.

However, if your gross income is less than the basic exemption limit, you will not be required to pay any penalty.

2. No carry forward of losses

In a scenario in which you have incurred losses in your investment, you can use them to offset against next year's income. As a result, it will reduce your tax liability in the next financial year. To carry forward and set-off losses, it is mandatory to declare them in your ITR before the deadline. If you file your tax return late, you will not be able to carry forward and set-off these losses against future profits. Although, you can carry forward the losses relating to house property.

3. Interest on the tax amount

As per Section 234A, if you don't pay your taxes on time, you will be liable to pay an interest of 1% per month on the outstanding tax amount. This interest is calculated from the date you file your return for the relevant financial year till the due date. Here's an example to help you understand:

Let's say you owe Rs 2 lakh in taxes for the financial year 2024-2025. The deadline to file your tax return is July 2025 , but you end up paying it in December 2025 , which is five  months later. In this case, you will be charged Rs 10,000  as interest (2 lakhs × 5%). This interest amount of Rs 10,000 will be added to your tax liability. So, the longer you delay in paying your taxes, the more your tax liability increases.

4. Prosecution for failing to file your Income Tax Return

If you fail to furnish your ITR and your income tax liability is more than Rs. 25,000 you shall be punishable with rigorous imprisonment of minimum 6 months upto 7 years and with a fine. In any other case( i.e. tax liability is less than Rs.25,000) you shall be punishable with rigorous imprisonment of minimum 3 months upto 2 years and with a fine.

What are the Due Dates for Filing Income Tax?

Take a look at the due dates for filing income tax return for the financial year 2024-25.

Final Word

In conclusion, it is clear that every individual and company needs to file their income tax returns on time to avoid the consequences.