What Is ITR And What Happens If Income Tax Return Is Not Filed?

An Income Tax Return or ITR is a statement of your income and tax liability for a particular year that you file with the government. This statement provides information about the assessee’s total income, expenses, assets and tax payable thereon. 

An ITR is required to be furnished by everyone who is mandated by certain conditions, every year within the due date. The due date for filing income tax return for individuals not liable to tax audit is 31st July of the next financial year. If ITR is not filed within due date, of the tax payer should pay late filing interest and penalty as the case may be.

This article will discuss in detail the conditions mandating the assessee to file a tax return, why a tax return must be filed and the consequences of not filing a tax return.

What is ITR?

• ITR stands for Income Tax Return.
• As previously mentioned, it is a formal statement filed by the taxpayer which contains the income earned, the deductions claimed and taxes payable, along with important disclosures as necessary.
• Income Tax Return is mandatory for satisfaction of certain conditions, and is optional for others.
• ITR can be filed even if the tax liablity is nil for the assessee.

Who are required to File ITR?

Income Tax Return filing is mandatory in India for a person who fulfils any of the following conditions:

If your Total Income is more than the Tax-Free Limit

Any person whose total income in a year exceeds the basic exemption limit, otherwise the tax-free limit must mandatorily file an ITR irrespective of a tax liability or not. 

The below table provides the basic exemption limit applicable for FY 2024-25:

If you want to claim an Income Tax Refund

An Income Tax Return is mandatory if you have a refund and want to claim it. The refund will only be initiated if the tax return has been furnished by the assessee.

A person with Foreign Income Or Foreign Assets

Any person who has a foreign income or holds foreign assets is mandatorily required to file an ITR disclosing details of such income and assets as prescribed.

A Company or a Firm

Every company and firm, regardless of profit or loss during the year, must file a tax return disclosing income or loss. Losses if any can only be carried forward if the assessee has filed the ITR.

An Assessee having Losses

As per the Income Tax Act, assessees have the benefit of carrying forward losses and adjusting them with future gains. However, to claim this benefit, it is mandatory to file an ITR disclosing such losses.

Deposited in Current Account Rs. 1 Crore or More

Any assessee who has deposited Rs.1 crore or more in one or multiple current accounts must file a tax return.

Deposited more than Rs 50 Lakh in your 'Savings' Bank Accounts

Any assessee who has deposited Rs.50 Lakhs in one or multiple savings accounts must file a tax return.

Spent more than Rs 2 Lakh on Foreign Travel

An assessee who has spent more than Rs. 2 lakhs on foreign travel during the year must file an ITR.

Electricity Expenditure is more than Rs 1 Lakh

An assessee having electricity expenditure exceeding Rs. 1 Lakh must file an ITR

TDS/TCS Withholding

Assessees having TDS/TCS withholding more than the prescribed limits must file their ITR mandatorily.

The prescribed limits are as follows:

Business or Professional Turnover 

Assessee having business and professional turnover more than the prescribed limit.

The prescribed limit is as follows:

Why should you File ITR?

• Loan application: Banks require the ITR of at least previous 2 years, for the process of loan approval. ITR stands as a proof of income earned by the taxpayer and his financial standing. 
• Carry forward of Losses: If you have losses in your business or capital gains, you can carry them forward to reduce your future tax liability by filing tax returns on time.
• Verified income statement: Freelancers and self-employed people don't have official income statements like salaried employees do, so filing tax returns is the most reliable way to verify their income.
• Visa application: When applying for a visa, your last 3 years ITR is required. Submitting tax returns from the last few years can help embassies verify your financial status and eligibility.

Which ITR To File?

• ITR differs for different taxpayers depending on their legal status, level of income and heads under which the income earned is classified.
• There are seven kinds of ITR forms, namely ITR-1 to ITR-7. The predominant kinds of ITR forms are listed below.

What Happens if ITR is Not Filed?

• Late-filing fee: If you do not file ITR within the due date, you may have to pay a late-filing penalty of Rs 5,000. This penalty will be reduced to Rs 1,000 if your income is below Rs 5 lakh.
• Interest: You may have to pay interest under Section 234A, 234B and 234C @ 1% per month respectively on the unpaid tax amount. 
• Carry forward of Losses: If the ITR is not filed on time, you will be not eligible to benefit from the carry forward of losses.
• Eliminate the Risk of Prosecutions under the law : If you are having taxable source of income exceeding the basic exemption limit and failed to file the return, there can be recovery of taxes by the government along with a penalty up to 60% of the income amount.

How To File ITR For FY 2024-25?

• If you get a salary, you can simply upload your Form 16, and ClearTax will prepare your return automatically and help you finish e-filing quickly.
• If you are a freelancer or run a small business or a home-based business like a Kirana store or an e-commerce seller (Section 44AD or 44ADA), ClearTax is the easiest place to e-file your ITR-4. Our CAs can prepare and e-file your income tax return. Please have a look at our CA-assisted plans here
• ClearTax automatically selects the correct ITR form applicable to you. We support all ITR forms – ITR-1, ITR-2, ITR-3, ITR-4, ITR-5, ITR-6, and ITR-7

What is the Last Day to submit the Income Tax Return (ITR) for the Financial Year 2024-25?

• The due date to file the Income Tax Return (ITR) is July 31st yearly. 
• However, if you don't manage it by this deadline, you are allowed to submit a belated return up to December 31st with late filing fees.

Who is Exempted from ITR Filing in India?

Section 194P provides conditional relief from the obligation to file income tax returns for persons who are 75 and above. This relief is based on the satisfaction of certain conditions.

1. Senior citizens are required to be at least 75 years of age.
2. Senior citizens shall have been residents of India in the preceding  years.
3. Their income must only come from interest and pension, where the interest is obtained from the same bank where they receive their pension.
4. The senior citizen must provide a declaration in this effect to the bank.
5. The bank must be one that has been officially designated by the Central Bank. These banks will withhold TDS for senior citizens after accounting for applicable deductions and rebates, thereby exempting them from the obligation to file income tax returns.

Final Word

Thus there are various benefits which comes from filing ITR, whereas non filing can bring adverse consequences. Therefore it is necessary to stay diligent about filing ITR accurately, wherever it is mandatory, in order to reap the benefits and avoid penal consequences.