Missed ITR-3, ITR-4 deadline? Your cost could be more than a Rs 5,000 fee | Personal Finance

But tax experts warn that treating December 31 as a new deadline can be costly. The consequences can extend beyond the late-filing fee to the tax regime available, loss carry-forward, refund interest and the ability to correct errors.

First, check whether you are actually late

One of the first mistakes taxpayers make is assuming that August 31 applied to everyone filing ITR-3 or ITR-4.

Mihir Tanna, associate director of direct tax at SK Patodia & Associate LLP, said taxpayers sometimes assume that they have until October 31, only to discover later that their turnover did not require a tax audit and that their deadline was August 31.

Taxpayers should therefore first determine whether their accounts are subject to tax audit under Section 44AB. Those covered by tax audit provisions generally have a later return-filing deadline.

For those who have indeed missed August 31, the return can generally be filed under Section 139(4) as a belated return by December 31, Tanna said. However, taxpayers should not necessarily wait that long.

The Rs 5,000 fee may be the smallest cost

A belated return can attract a late-filing fee of up to Rs 5,000 under Section 234F. Where total income does not exceed Rs 5 lakh, the fee is restricted to Rs 1,000, according to Tanna.

Interest can also apply on unpaid tax. Tanna pointed out that Section 234A charges interest at 1 per cent a month or part of a month. This means even a delay of a few days crossing into another month can result in an additional month’s interest.

Sandeep Bhalla, partner at Dhruva Advisors, said taxpayers should reconcile their return with the Annual Information Statement (AIS), Form 26AS and other financial records, calculate the liability and file at the earliest rather than simply treating December 31 as the target.

Missing the deadline can lock you out of the old regime

For taxpayers with business or professional income, one of the more significant consequences can be losing the option to choose the old tax regime.

Under the rules, taxpayers who want to opt out of the default new tax regime have to furnish Form 10-IEA by the due date under Section 139(1). Mrinal Mehta, treasurer of the Bombay Chartered Accountants’ Society, said taxpayers often view August 31 simply as a date after which they will have to pay a Rs 5,000 fee, without realising that it is also an important election deadline.

Consider a professional earning Rs 30 lakh with eligible deductions of Rs 9 lakh. Mehta’s illustration shows that the old regime could result in total tax of about Rs 4.60 lakh, compared with about Rs 4.99 lakh under the new regime. In this case, losing the old-regime option would cost roughly Rs 39,000 in additional tax.

However, Mehta cautioned against assuming that the old regime will always be cheaper. For a professional earning Rs 16 lakh with Rs 4.75 lakh of eligible deductions, his illustration showed the new regime could actually be cheaper by about Rs 31,200.

Sudhir Kaushik, cofounder and chief executive officer of Taxspanner, a Zaggle company, similarly said the impact depends on the taxpayer’s income and deductions. In his example, a professional earning Rs 25 lakh and able to claim Rs 10 lakh of eligible deductions under the old regime could face a tax difference of around Rs 70,000 if pushed into the new regime.

“Therefore, the correct comparison should be made before filing rather than assuming one regime is always better,” said Swati Godbole, associate professor, finance and law, at K J Somaiya Institute of Management.

Business losses can be more expensive than the late fee

Another important consequence is the treatment of losses.

Godbole said a taxpayer filing a belated return may lose the ability to carry forward certain business losses. For example, if a business suffers a Rs 2 lakh trading loss but files the return late, that loss may not be available to offset future profits, increasing tax liability in later years.

Mehta gave a larger illustration: an F&O trader with an Rs 8 lakh eligible business loss could potentially use that loss to reduce tax on future profits. If the return is filed late and the loss becomes ineligible for carry-forward, the future tax shelter could be worth around Rs 2.5 lakh, depending on the taxpayer’s circumstances.

The rules are not identical for every type of loss. Mehta noted that unabsorbed depreciation and loss from house property can continue to receive carry-forward treatment even where a return is belated, subject to the applicable provisions.

Bhalla added that the treatment of business and capital losses can depend on how the loss was reported and whether the taxpayer can seek condonation of delay under Section 119(2)(b).

Refunds and mistakes can also become a problem

A delayed return can also affect the interest payable on a refund. Tanna said that where the taxpayer is entitled to refund interest, the period attributable to the taxpayer’s delay can reduce the interest received.

There is also less room to fix mistakes. Mehta said a belated return can be revised under Section 139(5), but the revision window closes on December 31. Filing very close to that date can therefore leave little or no practical time to correct an AIS mismatch or omitted income.

For example, if a taxpayer discovers in December that Rs 10,000 of bank interest was omitted, there may be limited time to correct the return before the revision deadline, Mehta said.

What should you do now?

Experts recommend that taxpayers who missed August 31 should:

• Confirm the applicable deadline: Check tax-audit and transfer-pricing applicability.
• Reconcile records: Match AIS, TIS, Form 26AS, TDS/TCS, bank statements, books, GST data and capital gains information.
• Compare tax regimes: Check the impact of losing the old-regime option and whether Form 10-IEA was filed on time.
• Calculate and pay dues: Work out tax, applicable interest and late-filing fee.
• File the belated return: Do not wait until December 31 without a reason.

E-verify promptly: Complete verification after filing.

Taxpayers with unpaid tax, significant business or capital losses, expected refunds, foreign assets or income, AIS mismatches, or a requirement for an ITR for a loan, visa or tender should be particularly cautious about delaying, Kaushik said.

“The worst thing you can do now is treat December 31 as the new deadline,” Mehta said. “It is a backstop, not a target.”

File late if you must, but do not assume that paying the late fee will prevent consequences.