Fine on Late Filing of Income Tax Returns Is Unfair. Here’s Why

Why should we cough up a hefty fine for not filing IT returns, even after paying taxes?

The IT Returns Tangle

(Photo: iStock)

A tax payer’s duty is not merely to pay tax, but also to file returns. Earlier, any delay in filing of returns would empower the department to impose a fine. Nevertheless, it was discretionary.

The newly inserted Section 234F states that a penalty of Rs 5,000 will be applicable if an Income Tax return due on 31st July is filed late, between the due date and 31st December of the assessment year.

A penalty of Rs 10,000 will be applicable if tax return due on 31st July is filed later than 31st December of the assessment year.

While 31st July is nearly a week away, Chartered Accountant K Nirai Mathi Azhagan has filed a writ petition before the Hon'ble High Court challenging the rule on several counts.

Learned Advocate T Mohan appeared for the petitioner and contended that the fine amount did not distinguish between a person who pays Rs 50 crore and Rs 5 lakh.  Considering the fact that India does not have electricity and internet facilities across geographies, it was argued that the said imposition of fine is unfair.

It was also contended that the government websites suffer from heavy traffic on the last dates.

The court heard Mohan make the aforesaid submissions and ordered a notice to the Central government returnable by 3 August.

What was the Law Prior to Section 234F

Before the introduction of Section 234F of Income Tax Act, 1961, the penalty for failure to furnish the return of income was leviable under section 271F of the Income Tax Act, 1961.

According to section 271F, if the return is not filed before the end of the relevant assessment year, then the assessing officer, at his discretion, may levy a penalty amounting to Rs 5,000. However, this section has been withdrawn from the assessment year 2018-19, after the section 234F came into force.

Grounds for Discord

It is pertinent to note that section 234F of the Income Tax Act, 1961 is applicable even if the tax payer has discharged his entire tax liability to the government by way of Advance Tax, TDS, Self Assessment, etc. So a citizen is punished by virtue of section 234F even if he/she has fulfilled his/her tax responsibilities. In view of the same, Section 234F is illogical and harsh.

The fee u/s 234F of the Income Tax Act is charged indiscriminately to all tax payers (except for tax payer with income below Rs 5 lakh, wherein it is Rs 1,000) based on the delay period.

For instance, a person with income above Rs 1 crore and a person with income of Rs 5.01 lakh will have to pay the same amount of fine of Rs 5,000. Section 234F does not provide any exemption for even senior citizens and disabled persons.

There is an inordinate delay in activating the ITRs in the e-portal from the government’s side. Section 234F is, however, silent on what has to be done when the delay is because of the department and not because of a person. A citizen must not be made to suffer due to default by the government.

We must not forget that there are many villages and towns that are not blessed with electricity. Also, government websites face heavy traffic on the last dates. Delays in filing your return can also be because of the above reasons, with no fault of the citizens.

(This is an anonymous blog. The writer does not wish to reveal his/her identity.)