Delay in ITR filing can cost these taxpayers 1% penal interest a month: Here’s why

If your self-assessment income tax liability is more than Rs 1 lakh, then waiting till December 31, 2021 to file your income tax return (ITR) can cost you. As per a press release issued by the government on May 20, 2021, if an individual taxpayer’s tax due exceeds Rs 1 lakh for FY 2020-21, then the self-assessment tax payment must be made on or before July 31, 2021. If the tax dues are not paid, penal interest, as per under 234A of the Income-tax Act, 1961, will be levied. The penal interest will be levied at the rate of 1 per cent per month or part thereof from August 1, 2021, till the date of filing of ITR.

ET Wealth online had earlier alerted readers that the deadline to pay self-assessment tax dues is July 31 if it exceeds Rs 1 lakh and missing the deadline would invite penal interest. 

Self-assessment tax dues are calculated after subtracting TDS, TCS and advance tax dues. Here is a look at how self-assessment tax is calculated and how the penal interest will be calculated for those who delay filing their ITR.

How penal interest rate will be calculated?
Here is an example to understand how penal interest will be calculated:

Let us say Mr B’s self-assessment tax due for FY 2020-21 is Rs 1.5 lakh. He makes the self-assessment tax payment on October 10, 2021. As his self-assessment tax liability exceeds Rs 1 lakh for FY 2020-21, he will be liable to pay penal interest. The interest will be calculated from August 1 to October 10, 2021, i.e., two months and 10 days. However, even though he paid the tax due on October 10, i.e., on the tenth day of the month, he will have to pay penal interest for three months. This is because 10 days of October are considered part of third month. Due to this, Mr X will have to pay a penal interest amount of Rs 4,500 (3% of 1,50,000).

How to calculate self-assessment tax
Follow these steps to calculate the self-assessment tax due for FY 2020-21:

Step 1: Calculate your gross total income for FY 2020-21. This will include your salary income, capital gains, interest income, dividend income etc.

Step 2: Deduct the tax-exemptions and deductions from your total income to arrive at the net taxable income. Tax-exemptions and deductions include house rent allowance, tax-saving investments under section 80C (ELSS, PPF etc.), standard deduction of Rs 50,000 from salary income etc.

Do keep in mind that from this year, an individual has the option to either opt for new, concessional tax regime or continue with old tax regime with the tax deduction and exemptions. If the old tax regime is opted, only then can the individual avail the above-mentioned deductions. However, if one opts for the new tax regime, then he/she cannot avail any of the above-mentioned deductions.

Step 3: Calculate the tax liability on your net taxable income as per the tax regime chosen by you. The income tax rates and slabs are different in both the tax regimes. You can use ET Wealth’s online calculator to calculate your income tax liability.

Step 4: From your total tax liability, deduct the amount of taxes that have been paid as TDS from your salary, interest income etc. Also deduct the advance tax (if any) deposited by you during the FY 2020-21. Your Form 26AS will reflect these details. Once you have subtracted the TDS, advance tax and any other tax credit amount from your total tax liability, then you will arrive at the self-assessment tax amount you will have to pay before filing your ITR.

What is the deadline to make self-assessment tax payment?
As per income tax laws, there is no deadline for making the self-assessment tax payment. A taxpayer is required to first compute if he/she has any tax due to pay, then deposit the self-assessment tax, and after that finally file ITR using the form applicable to him for the specific financial year.

Usually, the last date to file ITR for individuals (whose accounts are not required to be audited) is July 31 (unless extended by the government), therefore, it is assumed that the last date of making payment of self-assessment tax is also July 31. If the government extends this deadline of filing ITR, then it is assumed that deadline of making self-assessment tax payment is also extended, unless otherwise is specifically mentioned by the government. This year the deadline of ITR filing has been extended to December 31, 2021, but if the self-assessment tax dues exceed Rs 1 lakh, then the deadline of making the payment was July 31, 2021.