Tax filing date extended to Sept 30, but not for all!

The last date for filing income tax returns (ITR) has been extended up to September 30, 2021 from July 31, 2021. Even in the previous financial year, it was extended up to January 10 to provide relief to individuals. The due date relaxations were given to reduce compliance burden for individuals in the aftermath of the pandemic.

Along with the extension of the ITR filing deadline, the belated / revised ITR filing deadline has been extended as well from Dec 31, 2021 to Jan 2022.

However, there is a catch. The same circular which extended the ITR date also carried this clarification.

“Clarification 1: It is clarified that the extension of the dates as referred to in clauses (9), (12) and (13) above shall not apply to Explanation 1 to section 234A of the Act, in cases where the amount of tax on the total income as reduced by the amount as specified in clauses (i) to (vi) of sub-section (1) of that section exceeds one lakh rupees.”

What does this mean?

An individual’s tax liability needs to be cleared by the due date of filing of ITR. TDS is deducted by companies for salaried persons and deposited with the government.

For self-employed professionals, there is a system of self-assessment advance which he / she can file on due dates during the year. If any individual does not clear his entire liability before the due date, he / she needs to pay penalties.

The clarification essentially means that if an individual has a self-assessment tax liability of more than Rs 1 lakh, over and above TDS deducted and advance tax paid during the year, then in that case the extension of the due date of ITR filing is not applicable. He / she should have filed the ITR by July 31, 2021.

In case, such an individual has not filed the ITR as he / she was under the impression that due date has been extended, then they should file ITR as soon as possible to reduce the penal interest and not wait for September 30.

The penal interest is 1% per month or part of the month (simple interest) on the tax amount outstanding. This interest will be calculated from the due date applicable to you for filing of return of the relevant financial year till the date that you actually file your return.

Suppose your tax liability is Rs 2 lakh and you file the return on Aug 31, 2021, you will be charged a penal interest of Rs 2,000. If you wait till Sept 30, your interest amount will double to Rs 4,000. So, if you have the money, pay now to avoid paying unnecessary interest as the annual rate is 12% which is very high.

You might be scratching your head then, what is the benefit of extending the ITR date. The details lie in the fine print. For individuals having tax liability exceeding Rs 1 lakh, the due date was effectively never extended.

Let’s clear some of your doubts.

Q. What if you are a salaried person? Should you file ITR immediately or can you wait till Sept 30?

A: If you are salaried and have no other income like rent or interest, then you need not worry as your HR Department would have generally deducted TDS accordingly and you would not be liable to pay extra tax.

If you have other income on which tax liability is more than Rs 1 lakh, then you should file ITR immediately. If you have other income on which tax liability is less than 1 lakh, then you can file ITR by Sept 30, 2021. No penal interest will be levied.

Normally, self-employed professionals have higher tax liability as TDS is deducted only at 10%, unlike the salaried class. If they haven’t regularly paid advance tax, then some of these individuals could have tax liability more than Rs 1 lakh, and need to act fast on filing of ITR.

Many experts feel that since a lot of taxpayers were not able to file ITR this year by July 31, due to technical glitches in the new IT portal, the government should consider providing exemption from payment of penal interest u/s 234A. However, we haven’t heard from the government on this yet.