Repercussions of Non-Filing of Annual Information Return as required by Section 285BA of the Income Tax Act, 1961 within the Specified Time Frame
The taxation of persons and enterprises in India is governed by the intricate and comprehensive Indian Income Tax Act, 1961. The submission of the Annual Information Return (AIR) by certain persons to the tax authorities is one of the Act's primary requirements. Serious repercussions, such as the issue of a notice under Section 274 read with Section 271FA of the Income Tax Act of 1961, may result from failure to comply with this provision. In this blog, our discussion will revolve around the importance of AIR and the consequences in case of non-filing.
What is AIR and Who Needs to File it?
Annual Information Return or AIR of 'high value financial transactions' is required to be furnished u/s 285BA of the Income-tax Act, 1961 by 'specified persons' in respect of 'specified transactions' registered/recorded by them during the FY. Section 285BA(2) of the Income Tax Act of 1961 specifies the due date for the submission of the AIR. Typically, the deadline is set at the end of September the year after the fiscal year for which the AIR is being reported. For instance, the September 30, 2022, deadline would apply to the submission of the AIR for the fiscal year 2021–2022.
Some entities/ individuals that are engaged in high-value financial transactions must submit the AIR to the tax authorities in accordance with Section 285BA of the Income Tax Act of 1961. The ‘specified persons’ and the ‘specified transactions’ are listed in Rule 114E of the Income-tax Rules, 1962. Banks, mutual funds, credit card firms, and other specified individuals as announced by the Central Board of Direct Taxes are among the organizations which are mandated to record and report these transactions by providing the AIR (CBDT) . The AIR essentially serves as a declaration of all financial year-end transactions that are important for tax purposes. Details of high-value transactions, including cash deposits, investments, and costs, are included in the AIR's database.
Importance of Submitting AIR
The submission of the AIR is a crucial component of compliance for the companies obligated to do so. It is an essential requirement, as it enables the Income Tax Department to track high-value financial transactions carried out by individuals, businesses, and other entities. This collected information is used to verify if the reported income of taxpayers is consistent with their spending patterns, and to detect any potential tax evasion.
Through recording and reporting high-value transactions, the tax authorities can monitor the origin and destination of funds, identify persons who may be involved in undisclosed financial transactions or concealing their income, and take appropriate measures to ensure adherence to tax laws. This approach helps in curbing tax evasion, enhancing transparency and impartiality in the tax system, and encouraging taxpayers to comply voluntarily.
Consequences of Non-Filing within the Specified Deadline
The entity in question risks severe repercussions if the AIR is not submitted by the deadline specified. Under section 271FA of the Income Tax Act of 1961, the tax authorities may begin legal action against the entity. The maximum fine under this section is Rs. 5 lakhs, with a penalty of Rs. 100 for each day of default.
In addition, under Section 274 of the Income Tax Act of 1961, the tax authorities may also send out a notification. The implementation of fines for different forms of non-compliance, including failing to submit the AIR, is covered in this section. The maximum fine under this section is Rs. 10,000.
The notification issued under Section 274 of the Income Tax Act of 1961, read with Section 271FA, is a serious matter and should not be treated lightly. It is crucial for the involved company to reply to the notice in a suitable and timely manner. Understanding the nature of the non-compliance and the causes of it is the first step in responding to the notice. The failure to submit the AIR may frequently be the result of an honest error or a technical problem. The entity may be able to explain the situation to the tax authorities and ask for tolerance in such circumstances.
The repercussions could be more severe if the non-compliance was brought about by the entity's willful or purposeful conduct. Further legal action and fines could be brought by the tax authorities, which would have a negative effect on the entity's finances and reputation.
Therefore, entities must ensure prompt and accurate compliance with section 285BA requirements in order to avoid receiving a notice under section 274 read with section 271FA of the Income Tax Act, 1961. This includes keeping accurate transaction records, making sure the AIR is submitted on time, and reacting right away to any inquiries or notices from the tax authorities.
Income Tax Act, 1961's main compliance requirement is the filing of the AIR information. A notice under sections 274 read with 271FA of the Income Tax Act of 1961 may be issued if this requirement is not met and serious repercussions, such as fines and other legal action, may result for the involved entity. It is crucial to remember that following tax laws and regulations is not only required by law but also by morality. Every person and organization has a duty to pay their fair share of taxes and contribute to the advancement of the nation. They can steer clear of any potential legal problems and help the nation's growth and development by complying to the laws and regulations.
In order to ensure compliance with the different tax laws and regulations, companies should also think about hiring a specialist. On a variety of compliance obligations, tax specialists can offer direction and advice as well as assist in preventing any potential legal complications. If you need any signified services for the same and any other related queries, SuperCA can help you. We are ready around-the-clock to help and make sure that all your compliance requirements are swiftly met. Our team of tax and finance professionals carefully examine each and every return that is submitted, providing support throughout the entire process. Get in touch with us today!