Income tax returns (ITRs) are documents that individuals and one-person businesses (OPCs) submit to India’s IT department with information about their earnings and the taxes they owe for the previous fiscal year. The information included in an ITR must be relevant for a certain fiscal year that runs from April 1 through March 31 of the following year.
As a result, an one person company with taxable income and unauditable accounts must file an ITR. Online filing of the return is required if total income exceeds Rs. 5 lakh.
In light of the aforementioned, we go over the effects of an OPC failing to file an ITR in this blog.
An explanation of what transpires when an OPC fails to submit an ITR
For an OPC, filing an ITR has a lot of advantages. However, under the various parts of the IT Act, late payments are subject to various types of penalties.
Effects of failing to submit an ITR for OPCs
Consequences of an OPC’s failing to file an ITR include the following:
Levy of Penalties
An one person company registration will obtain a notification from the IT department if it completely forgets to file its ITR for an assessment year in accordance with Sections 142(1), 148, or 153A. The involved OPC could be prosecuted for tax evasion under Section 276CC of the IT Act if the ITR is not filed, notwithstanding the implementation of these safeguards.
The specifics of imprisonment are as follows:
- For alleged tax evasion exceeding Rs. 25 lakhs, there is a penalty for failing to file an ITR as well as a minimum 6-month sentence that may be increased to 7 years in prison.
For other offences: The prescribed punishment plus a minimum of three months’ imprisonment, with a maximum sentence of two years.
Section-specific fines for failing to submit an ITR
The following table lists the various penalties that an OPC could experience depending on the circumstances surrounding a late ITR filing.
| Sections | Nature of offence | Penalty levied | ||||
| Section 234F |
|
If the ITR is submitted before the assessment year’s 31st December, the fee is ₹5,000; if it is submitted after that date but before the assessment year’s 31st March, the fee is ₹10,000. This applies to anybody whose annual income exceeds ₹5 lakh. The fine is ₹1,000 for people whose income is less than this. | ||||
| Section 234A |
|
|
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| Section 271H | Missing the deadline for filing tax deducted at source (TDS) and tax collected at source (TCS) returns | In addition to the late filing fine of Rs. 200 each day until the TDS or TCS is paid, which is between Rs. 10,000 and 1,00,000 | ||||
| Section 270A |
|
50% of the entire tax due on the income for which no return was filed |
Do those whose salaries fall below the threshold for taxation also have to pay a late ITR penalty?
In general, the IT department does not charge those with total gross incomes below the exemption limit any penalties for failing to file an ITR. Nevertheless, the Union Budget 2019 made changes to the IT Act that took effect in AY 2020–21 and required taxpayers who meet the following requirements to file an ITR even if they do not have taxable income.
- Those who have spent more than Rs. 1 lakh for electricity
- Those who spent more than Rs. 2 lakh on an international trip
- Individuals who have a cumulative deposit in one or more current accounts with a bank that exceeds Rs. 1 crore
- Individuals who live in India but derive their income from outside sources
You will be required to pay the statutory penalty for failing to file an ITR if you fall under any of these circumstances or others outlined in the most recent modification to the IT Act. As was already mentioned, even individuals without taxable gross income are subject to this.
Tax interest for late payments
The late payment penalty is 1% of the outstanding tax amount. It is calculated from each of the previously listed cut-off dates until the day when the unpaid taxes are actually paid.
The IT division works to make citizens’ compliance with advance tax payments as simple and convenient as possible. One can choose to pay it in four instalments throughout the financial year.
Yet, there are repercussions in the form of an interest penalty if you continue to default. Section 234C primarily addresses the interest to be assessed on taxpayers who miss payments on their advance tax instalments.
What is an advance tax?
Calculating and paying any required income taxes beforehand, i.e., throughout the fiscal year rather than at the end of the year, is advised. After deducting TDS for the applicable fiscal year, the current laws only oblige taxpayers to pay advance tax when their total income tax due for the fiscal year exceeds Rs. 10,000.
Due dates for paying advance tax
The IT department anticipates that you will pay your taxes on time; otherwise, interest for late payment will be assessed when you file your returns. On the following days of a fiscal year, advance tax is paid:
| On or Before | In the case of all taxpayers other than taxpayers opting for presumptive income u/s 44AD | Taxpayers opting for presumptive income u/s 44AD |
| 15th June | Up to 15% of advance tax payable | Nil |
| 15th September | Up to 45% of advance tax payable | Nil |
| 15th December | Up to 75% of advance tax payable | Nil |
| 15th March | Up to 100% of advance tax payable | Up to 100% of advance tax payable |
Example of calculating interest for a late payment
Suppose that you owe Rs. 100,000 in taxes overall for the current fiscal year, which must be paid in instalments as previously described. Presume there isn’t any TDS present. Instead, if you made partial payments, you would be responsible for paying interest according to the final column in the table below:
| Payment dates | Advance tax payable | Total advance tax paid | Shortfall (cumulative) | Penalties (cumulative) |
| 15th June | 15,000 | 5,000 | 10,000 | @1% * 3*10,000 = 300 |
| 15th September | 45,000 | 25,000 | 20,000 | @1% * 3 *20,000=600 |
| 15th December | 75,000 | 35,000 | 40,000 | @1% * 3 *40,000=1200 |
| 15th March | 1,00,000 | 50,000 | 50,000 | 1% * 1 *50,000=500 |
Thus, the total amount of interest due is Rs. 2,600.
Causes for OPCs’ failure to submit an ITR
Some of the explanations for OPCs failing to submit an ITR include the following:
Ignorance of the laws and guidelines that govern taxation
One of the main reasons OPCs fail to file ITRs is a lack of understanding of tax laws and regulations.
Other barriers to OPC companies filing their ITR include the following:
Giving false personal information, making errors when applying for Section 80C deductions, calculating incorrect interest income on savings accounts, failing to plan for multiple properties, making mistakes with TDS details, failing to pay advance tax or self-evaluation tax, filing incorrect ITR forms, failing to send out ITR-V on time, failing to disclose all sources of income, failing to pay tax on household property, giving false postal and email addresses, and not reviewing the concerned form before filing.
Poor record-keeping procedures
Companies that qualify for a presumptive tax benefit from not having to keep any books of account. However, if the revenue revealed is less than 8% of gross receipts and the total income exceeds Rs. 250,000 or the yearly turnover reaches Rs. 2 crore, they are required to keep books of account (in the FY 2016–17).
If the stated revenue is less than 50% of gross receipts and the total income exceeds Rs. 250,000 or the turnover exceeds Rs. 50 lakh, professionals are required to keep books of account.
An OPC is required to keep the books of account specified in Section 44AA in order to comply with the IT Act. The OPC will be responsible for paying a penalty under Section 271A if it doesn’t keep its books of accounts in accordance with Section 44AA’s requirements. The Section 271A penalty in this regard is a 25,000-rupee fine.
Having insufficient funds to pay taxes
An OPC’s inability to pay taxes and, as a result, properly file its ITR is sometimes caused by a lack of finances. So, a one-person company should constantly make sure that it has enough money on hand to pay taxes and, as a result, properly file its ITR.
How to prevent failing to file an ITR for OPCs
By taking the actions indicated below, an OPC can prevent the failure to file an ITR:
Engaging a qualified tax consultant
A tax consultant’s or advisor’s main responsibility is to assist individuals and organizations in filing their taxes. They have knowledge of tax law, tax observance, and tax strategy. A tax consultant can help with both long- and short-term tax optimization for both private individuals and business owners. They assist in filing tax returns and collaborate closely with their clients to reduce their annual tax obligations.
Tax advisors are well-versed in the tax laws outlined in the IT Act of India that both individuals and corporations must follow while reporting their taxes. A tax consultant in India provides assistance for the following in addition to tax filing:
- Tax documentation
- Filing e-returns
- Evaluating a taxpayer’s legal and financial circumstances to determine his or her tax liabilities
Keeping up with the most recent tax laws
You can reduce the likelihood of an audit or probe by knowing the regulations and avoiding costly mistakes. Understanding tax rules can assist you in decreasing your tax liability, avoiding legal issues, and making wise financial decisions.
Keep in mind that tax rules and regulations change frequently, so it’s crucial to keep up with them. The best approach to staying educated is to speak with a tax expert, like a tax lawyer or a certified public accountant (CPA). They can give you the most recent information and aid in your decision-making regarding your tax position.Keeping good records:
• helps to optimize all the costs you claim and minimize your tax requirements
• makes year-end account preparation more quickly
• provides you with the knowledge you need to manage and expand your business
• aids with tax payment planning
• can aid you in making financial plans to satisfy obligations like paying creditors or staff.
• avoids paying too much or too little tax
• makes it simpler to share earnings and losses in partnerships or to pay profits to shareholders as dividends
Putting tax payment deadlines first
Every OPC must make meeting tax payment deadlines a priority. In fact, an OPC can benefit by ensuring the same by doing the following:
- Allows enough time for planning: To file your ITR, you might need to compile a lot of documentation from various sources. Once you have gathered all of this information, you must give it to your tax advisor or chartered accountant (CA) so that they can accurately determine your tax liability. Your tax advisor or CPA will be able to offer your case more attention, which will lower the possibility of mistakes.
- Allows losses to be carried forward and offset: If you experienced a capital loss or a loss from your business or profession when computing your total revenue If the ITR is not turned in by the deadline, it cannot be carried over and cannot be used to offset potential gains in subsequent assessment years. If you want to benefit from “carrying forward and setting off losses” in subsequent assessment years, submit your ITR well before the deadline.
- You avoid paying late fees and interest: ITRs that are filed after the due date, often known as “belated returns,” are subject to fines and interest. Until you file the ITR, you are obligated to pay interest at a rate of 1% per month, or a portion of it, in accordance with Section 234A of the IncomeTax Act of 1961.
- Faster refunds: If you are certain that you qualify for a tax refund, submit your ITR well in advance of the due date. Due to increased activity at the tax department’s end, if you file your ITR soon before the deadline, the tax refund may be delayed.
- Faster return processing: As the ITR filing deadline approaches, the tax filing portal server may operate slowly as a result of many server queries. This can cause a technical difficulty while submitting returns. In order to avoid the unpleasant experience and the deadline rush, it makes sense to start early.
Conclusion
We now wrap up this topic by going through everything we discussed.
Serious legal repercussions may result from an OPC’s failure to file an ITR. An OPC will be in a stronger position in this regard if it adheres to the protocols outlined below in order to avoid such legal issues:
- An OPC can hire a tax adviser to file its ITR with proper care.
- In order to avoid fines and perhaps jail time as a result of failing to file its ITR, an OPC must keep up with the most recent tax legislation.
- Before submitting its ITR, an OPC must verify compliance by maintaining accurate records of its financial activities and bookkeeping.
- In order to ensure compliance with the quick submission of its ITR, an OPC must prioritize its tax payment dates first.
Read on to learn the advantages of filing an ITR, even if you are not legally obligated to do so before you decide as an OPC not to. Later on, you’ll appreciate it.
One can always choose Govche India Private Limited’s web portal, Kanakkupillai.com, for these purposes. A virtual accounting service called Kanakkupillai helps clients adhere to tax laws to prevent negative financial and legal repercussions. Their team consists of dedicated, research-driven, and talented specialists who have been serving individuals and business owners since 2007 by providing their financial and legal advising needs in general and ITR filing in particular.
Which IT return is preferable for an OPC to select for electronic filing?
For each type of tax scenario, there are nine structures: ITR 1, 2, 2A, 3, 4, 4S, 5, 6, and 7. Choosing the appropriate annual tax paperwork takes a lot of effort. This is the reason why if you file with Kanakkupillai.com, they will determine the appropriate ITR format for you.
We hope that everyone who reads this blog will find it fascinating to understand about the repercussions of an OPC not filing an ITR. As we come to a close with our discussion in this regard, we want to emphasize how important it is for an OPC to follow the protocols in order to prevent any potential repercussions from failing to file its ITR.
