How much financial loss can be caused by failure to file returns?

If an individual taxpayer fails to file a tax return by tax day, he risks facing three major financial losses, which can result in a significant increase in the taxpayer’s tax liability.

The National Board of Revenue extended the tax day by two months to 31 January 2024 and the scheduled date has passed a few days ago. According to the Income Tax Act 2023, the taxpayer no longer needs to apply for extension of time and the taxpayer can file the tax return at any time but he will lose some tax benefits.

Let’s take a look at the three major financial losses you may face if you fail to file your returns within the stipulated time.

Deprived of tax concessions

Tax rebate benefits are provided on investment allowances to reduce the tax liability of an individual taxpayer substantially. 15% of Investment Allowance or 3% of taxable income: These two figures will be the lesser of which an individual taxpayer can claim as tax relief. However, individual taxpayers are entitled to a tax rebate of up to Tk 10 lakh. Now if a taxpayer fails to file the return by the tax day then he will be deprived of this tax concession.

Suppose your taxable income is Rs.6,00,000 and the tax rebate on this amount will be Rs.18,000

(Tk. 6.00.000X3%). Failure to file your return by Tax Day means you cannot claim this tax credit.

Deprived of tax free benefits

As per the Income Tax Act, there are several types of income which are covered under tax free benefits. Again we exclude some exemptions as taxable income. But the taxpayer will be deprived of the above benefits for not filing the return within the stipulated time.

Suppose a salaried person has one-third of the income in the gross salary sector or Rs. 4,50,000; He will deduct the lesser of these two figures from the salary sector income and calculate the taxable income. And on this taxable income he will assess the tax according to the tax bracket.

But since the said salaried taxpayer could not file the return within the stipulated time, he will be deprived of this benefit as well.

A monthly interest of 4% shall be payable on the total amount due

Late interest rate till last year was 2% but from this year it will be 4% on monthly basis. Even for fractional months late interest shall be payable for a full month. Suppose, if you file your tax return on 14 March 2024, you will have to pay 4% late interest on your total tax due for two months.

In addition, tax money already deposited in the government treasury as tax at source or as advance tax cannot be deducted. That means, you have to pay interest on the entire tax. But previously. The tax payer could deduct the amount of tax paid as they have already paid it to the government treasury.

On one hand you are losing tax concessions and tax exemption benefits: and on the other hand you have to pay 4% deferred interest on the full tax discussed above which will increase your tax bill significantly.

How much is the penalty for failure to file returns?

As you have already learned above, a taxpayer may face financial loss if he fails to file the return by the tax day and if the return is filed after the due date. And now what you will know is that a person has income or it is mandatory for him to file return as per income tax law but he has refrained from filing return. In such a case, if the Income Tax Officer comes to know about it, then he can impose a penalty. And this penalty is in addition to the monetary damages discussed above.

So now the question is, according to the income tax law, how much to pay the penalty?

The amount of penalty to be paid will depend on whether the taxpayer is new or old. If a person has never filed a return in the past even though it was mandatory for him to file a return, the penalty will be a maximum of Rs 5,000.

And if an individual taxpayer has previously filed a return then 50% of the tax payable on his last assessed income or Rs 1,000: whichever is the greater, he will be penalised.

So how will the penalty be calculated?

If a person fails to file a return without reasonable cause, the Commissioner of Excise may impose a penalty at the rate of 10% of the tax levied on the last assessed income of the person, but this penalty shall not be less than Rs.1,000. And an additional penalty of Rs.50 will be levied for every day till he refrains from filing the return.

So you know the financial loss for failure to file return within the stipulated time and the amount of penalty for non-filing of return. So always try to file the return within the stipulated time and if you are eligible to file the return then file the return regularly.

For any advice regarding return filing please contact TaxFile BD. You can easily file returns from home with their help.