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Implications of not Filing an Income Tax Return for One Person Company

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Implications of Not Filing an Income Tax Return for One Person Company

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. 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.

Key Takeaways

  • ImImplications of Not Filing an Income Tax Return for One Person CompanyIncome tax returns (ITRs) are documents that individuals and one-person businesses (OPCs) submit to India’s IT department.
  • However, under the various parts of the IT Act, late payments are subject to various types of penalties.
  • Union Budget 2019 made changes to the IT Act that took effect in AY 2020–21 and require taxpayers who meet following requirements to file an ITR even if they do not have taxable income.

 

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
ITR filing after the deadline
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
A person fails to file ITR within the due date and has an outstanding unpaid tax
Interest on the unpaid tax amount accrued at a rate of 1% each month since the deadline has passed
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
A person having taxable income underreports their income in their returns or fails to in their ITR. A person having taxable income underreports their income in their returns or fails to file their ITR.
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 require 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 installments 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 installments.

What is an advance tax?

It is advised to calculate and pay any required income taxes beforehand, i.e., throughout the fiscal year rather than at the end of the year. 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 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 installments 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 company 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, an 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 tax payer’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:

  1. Allows enough time for planning: To file your ITR, you might need to compile a lot of documentation from various sources. And 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.
  2. 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.
  3. 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.
  4. 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.
  5. 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:

  1. An OPC can hire a tax adviser to file its ITR with proper care.
  2. 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.
  3. Before submitting its ITR, an OPC must verify compliance by maintaining accurate records of its financial activities and bookkeeping.
  4. 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.

Get a tax refund

Even if your total taxable income is below the basic exemption limit and you owe no taxes for that year, there may be times when tax has been withheld (TDS) from your income. If this is the case, you must request a TDS refund, for which you must submit an ITR without exception.

Income and address proof

You can use your ITR as evidence of your income and residence.

Carry forward your losses

You can roll losses over to later years if you submit the return by the initial deadline. These losses can then be used to offset future income. As a result, you can deduct certain losses from the relevant income, lowering your tax obligation on future income. Without filing the ITR, this is not possible.

Avoid penalty

If you fail to file your tax returns as required by the IT Act, the tax officer has the right to charge you a fine of up to Rs. 5,000.

How Kanakkupillail.com can step in for an OPC to comply with tax requirements and consequently avoid legal and financial consequences by filing an ITR

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.

FAQ on One Person Company Registration in India

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Kanakkupillai

Kanakkupillai is your reliable partner for every step of your business journey in India. We offer reasonable and expert assistance to ensure legal compliance, covering business registration, tax compliance, accounting and bookkeeping, and intellectual property protection. Let us help you navigate the complex legal and regulatory requirements so you can focus on growing your business. Contact us today to learn more.