Income Tax Return (ITR) filing date extended, but here's where taxpayers will be trapped

Income Tax Return (ITR) filing: Looking at the last minute rush, the Income Tax Department has decided to give a month long breather to tax payers in filing their Income Tax Returns (ITR). There are many reasons for rush at end moment, while some try to still get cracking and follow proper procedures for filing ITR, either online or taking help of Chartered Accountants (CAs), some simply get frustrated by the fact that it requires them to recall and keep track of what they spent their money on or saved. Thus this may result in laziness and in the process ITR does not get filed - some even forget it for years.

Therefore, Income Tax department has now extended the deadline for filing ITR up to August 31, 2018 from previous July 31. While this looks like a breather of one month for any taxpayer, interestingly, there’s a section 234B of IT Act that you need to understand before you start dancing over deadline extension. 

Rohit Grover, Tax Manager – TASS Advisors LLP said, "Yes, this is true for taxpayers with a total liability of more than Rs 10,000 in a financial year.  Where 90% of such tax liability is not paid before 31 March of the financial year, interest is payable under section 234B of the Income Tax law @ 1% for each month starting from 1 April following the end of the financial year until the date of deposit of tax." 

In Grover's view, so even if the due date for submission of tax return has been extended until 31 August 2018, if you have any unpaid tax liability which is subject to interest under section 234B of the Act, you should pay the same by 31 July to save one-month interest liability.   However, this may not be relevant for salaried class/ other taxpayers whose income is already subject to 100% tax deduction at source. 

What is Section 234B? 

Interest under section 234A is levied for delay in filing the return of income. In other words, if the taxpayer files the return of income after the due date specified in this regard, interest under section 234A will be levied.

For example! 

Mr. Kapoor is a doctor. His tax liability for the financial year 2017-18 amounted to Rs. 8,400. The due date of filing the return of income in his case is 31st July, 2018. On 5th August, 2018 he paid tax of Rs. 8,400 and filed his return of income. Will he be liable to pay interest under section 234A? 

Interest under section 234A is levied for delay in filing the return of income. The due date for filing the return of income in the case of Mr. Kapoor is 31st July, 2018, but suppose he paid the tax and filed the returns on 5th August 2018. Hence, he will be liable to pay interest under section 234A on the outstanding tax liability. 

Same is the case for filing ITR on let’s say 9th January, 2019. If a person’s liability is around Rs 8,400 and he files for ITR on January 9th, 2019, he is still liable to pay interest under section 234A.

What we understand is no matter when you file for ITR either by end of August 2018, or even extend it to January 2019, one thing a taxpayer needs to remember that July 31, is the exact deadline for filing an ITR. And if any filing made after the deadline you fall under the bracket of section 234B. 

The above mentioned example is explained by Income Tax Department on their website, while highlighting clause of section 234B. 

Interest under section 234A is levied for delay in filing the return of income. Interest is levied at 1% per month or part of a month. The nature of interest is simple interest.

In other words, the taxpayer is liable to pay simple interest at 1% per month or part of a month for delay in filing the return of income. 

As per IT department, interest under section 234A is levied from the period commencing on the date immediately following the due date of filing the return of income and ending on the date of furnishing the return of income, or in case where no return has been furnished, on the date of completion of the assessment under section 144.  

It should be noted that while computing the period of levy of interest, part i.e. fraction of a month is considered as full month.

Interest under section 234B is levied in following two cases: a) When the taxpayer has failed to pay advance tax though he is liable to pay advance tax; or b) Where the advance tax paid by the taxpayer is less than 90% of the assessed tax (meaning of assessed tax is discussed later).