By: Tracy Sloop Frost, Dezan Shira&Associates
As foreign direct investment into India continues to grow, many individuals are asking themselves what their responsibility is in regards to filing an Indian tax return. Because Indian penalties are strict for late or non-filing, and because certain limitations exist for late-filed returns, it is important to know the filing rules and apply them in a timely manner.
India’s Tax Return Deadline
The Indian tax year runs from April 1 to March 31. The period during which income is earned is referred to as the fiscal or financial year. Income taxes are due in the year after the financial year, termed the assessment year. Therefore, timely-filed income tax returns for income earned during the period April 1, 2013 to March 31, 2014 were due at the end of the assessment year, on March 31, 2015.
The deadline for late-filing 2013-2014 tax returns is July 31, 2015. However, a belated return can be filed within a period of one year from the end of the assessment year or before completion of the assessment, whichever is earlier. For the financial period April 1, 2013 to March 31, 2014, a belated return can be filed up to March 31, 2016. If the return is not filed by the end of the assessment year, in addition to interest, a penalty of Rs. 5,000 will be levied on the return.
Determining Whether There is a Filing Responsibility
Filing an income tax return in India is mandatory under the following circumstances:
- Resident individuals whose total gross income exceeds Rs.250,000 for fiscal year ending March 2015. Gross income is defined as total income from all sources including interest, rental, royalty, fees, dividends. Non-resident Indians (NRIs) must file an income tax return if their total gross income exceeds Rs. 250,000.
- Resident individuals with financial interests in entities located outside of India. (Not applicable to NRIs or Resident Not Ordinary Residents (RNORs)).
- Resident individuals with signing authority in a foreign account (not applicable to NRIs or RNORs).
- Resident individuals in receipt of income derived from property held by a trust, institution, or any other body or association.
Disadvantages to Late-filing
Late filing, while preferable to non-filing, carries with it certain disadvantages over a timely-filed return. For example, because a belated return cannot be revised, if an error results in overpayment of tax on the belated return, that income cannot be refunded if the error is discovered after the late-filing. Additionally, those that file belated returns cannot carry forward capital losses to the next year (generally, capital losses can be carried forward for eight years and set off against capital gains). Moreover, simple interest of one percent per month is charged on the outstanding tax liability up to the date of payment of the tax. Finally, late filing of a return delays refunds, and the interest on that refund.
Failure to File
In addition to the late filing penalties listed above (1 percent interest and Rs. 5000), the Indian government levies a penalty at a rate of 100 percent to 300 percent of the tax sought for concealment of income if a return is not filed. The penalties are imposed at the discretion of the tax authorities. The defaulter is also exposed to the risk of prosecution and imprisonment for tax evasion.
Individuals who may be required to file an Indian income tax return should carefully review the filing requirements to ensure timely filing. If necessary, individuals should seek the help of a chartered accountant in filing belated returns in order to reduce the likelihood of irreversible filing errors.
This article was first published on India Briefing.
Since its establishment in 1992, Dezan Shira & Associates has been guiding foreign clients through Asia’s complex regulatory environment and assisting them with all aspects of legal, accounting, tax, internal control, HR, payroll and audit matters. As a full-service consultancy with operational offices across China, Hong Kong, India and emerging ASEAN, we are your reliable partner for business expansion in this region and beyond.