The income tax department has launched a new feature on the income tax e-filing website that allows an individual to pay income tax later. This means that an individual can continue to file ITR without paying the pending income taxes first. Once the ITR is filed, then the income tax amount can be paid, albeit with some conditions. Earlier the ITR could only be filed once the due taxes were paid.
“Income tax department has given an option of pay later when we file income tax return (ITR). Therefore, an individual can file an ITR without paying income tax dues first by using the pay later option,” said CA Abhinit Singh, Founder, Ready Accountant, a Kolkata-based educational institution.
Read below to find out how to use the ‘Pay Later’ option on the Income Tax Department’s e-filing portal.
Pay later facility is available for this tax payment
According to Mihir Tanna, Associate Director (Direct Tax), S K Patodia & Associates, a Mumbai-based CA firm, “The ‘Pay Later’ option can be used for payment of self-assessment taxes only at the time of ITR filing.”
Singh of Ready Accountant adds that the pay later option cannot be used for tax payments like advance tax, TDS and others.
What will you lose if you use this option?
There are certain things an individual needs to keep in mind while using the ‘pay later’ option. Once you select this option while filing ITR, firstly, it will say ‘You may be considered as assessee in default’. Secondly, it will say ‘You may be liable to pay interest on tax payable.
Sujit Bangar, founder, TaxBuddy, a tax filing platform said, “An individual will be considered assessee in default if penal interest is applicable on tax dues. Once an individual is treated as an assessee in default, the income tax department can initiate all measures for recovery of such taxes.”
According to the income tax department helpdesk agent, an intimation notice will be sent to the individual after the ITR is processed. This notice will mention that you have a tax amount due and to pay that as soon as possible. Post that, an individual will get 30 days to pay income tax dues with no penal interest levied. If the tax dues are paid after 30 days, then penal interest will be applicable.
However, tax experts have divided opinions about the one-month period. Both Bangar and Tanna argue that the individual is at default from the moment he/she opted for the pay later option. Hence, penal interest will be applicable at 1% on tax dues. An additional penal interest of 1% will be applicable if tax dues are paid after 30 days.
If the ITR remains defective even after the 15 days’ timeline, the same will be considered as invalid return and other provisions shall apply as if the taxpayer has not filed the return in addition to adverse consequences of non-payment of self-assessment tax.”
Singh from Ready Accountant says, “The income tax department does not have a specific time limit to pay tax dues under pay later option. An individual should pay income tax dues in the same month in which ITR is filed. For example: If ITR is filed using the pay later option on July 11, 2023, then an individual has time till July 31, 2023, to pay tax dues. If it is paid post this date, then penal interest will be levied.”
How to use the ‘pay later’ option to pay income tax?
The pay later option will appear when an individual is filing his/her ITR. The process to use this option is not complicated and can be done easily via the following steps.
Step 2: Once logged in, click on the ‘e-file’ option, select ‘income tax return’, and then select ‘file income tax return’.
Step 4: Once you have filled in all the required details of your income and deductions as applicable, the income tax portal will automatically calculate if there are additional taxes that you must pay. Here you will have to validate your total tax payment based on the ITR filed.
Step 5: On this webpage, you will see the details of exactly how much income tax you must pay by way of a summary.
Step 6: Assuming you agree with the additional tax liability, you can select either the ‘Pay Later’ or ‘Pay Now’ option.
Step 7: If you select the ‘Pay Later’ option here, you can file your ITR without payment of income tax.
How to pay taxes later
Once the ITR is filed, there are two ways to pay income tax dues after using the pay later option.
Using e-pay tax method: Once you have successfully filed the ITR, you can go to the e-pay tax option to pay the pending tax dues. It is likely that no penal interest will be charged if income tax dues are paid before the tax demand notice is issued.
Paying tax dues after receiving income tax notice: The tax demand notice will be issued after ITR is processed.
The taxpayer can settle his income tax dues in two ways:
Self-Assessment Tax: If the income tax is paid before receiving any intimation notice from the income tax department or within 15 days of receiving a defective ITR notice, it can be remitted in the form of self-assessment tax on the income tax portal. In the defective notice/intimation, the tax authority will give an opportunity to the individual to rectify the defect (i.e., payment of taxes due as per the ITR in this case) before processing it.
Tax on Regular Assessment: In this case, the ITR is processed and a demand notice is issued by the tax authorities and the taxes have to be paid as tax on regular assessment on the Income tax portal. Interest under Section 234B, if applicable, and 220(2) (where demand is not paid as per the specified timeline) and also a penalty may be levied under Section 221 (assessee in default), where applicable, for non-payment of self-assessment tax on time.
Under section 221, a penalty may be levied by the assessing officer due to the individual being deemed to be an ‘assessee in default’ for non-payment of tax admitted as due in ITR but not paid by the due date of filing ITR. However, the levy of penalty is not automatic.
The assessing officer has to give the individual reasonable opportunity of being heard before levying the penalty. If the individual proves to the satisfaction of the assessing officer that the default was for good and sufficient reasons, no penalty can be levied.
If the assessing officer is not satisfied with the reasons provided by the individual, then the assessing officer may levy the penalty up to the amount of tax in arrears. It is important to note that the assessing officer can levy a penalty even if the individual has paid the tax before levy of such penalty.”
Do note that the demand notice may be issued not only for using the ‘pay later’ option but also for any other tax adjustments which the tax department may carry out while processing the ITR.