Why should you submit tax return by Dec 31?
If you miss your tax filing by December 31 this year, you will lose a significant amount of tax credit due to strict deadline of tax submission. So, if you have not yet been able to lodge your tax return then decide to submit within the stipulated time.
Now the question is why it is important to submit your tax return by December 31?
There are two main reasons. Let's discuss using simple examples.
Lose 50 per cent tax credit facility!
You will lose a 50 per cent tax rebate facility if you miss the deadline
You will lose a 50 per cent tax rebate facility if you miss the deadline. According to changes in tax law brought about this year, if an assessee fails to submit income tax return, s/he shall be entitled to a credit from the amount of tax payable on his/her total income at the rate of 7.5 per cent of the eligible amount.
Tax rebate is the way to reduce tax liability and you are eligible to get 15 per cent tax rebate on your investment allowance. So, if you cannot submit the tax return by due date then your tax rebate rate shall be 7.5 per cent instead of 15 per cent.
Sometimes for reasonable cause, it may not be possible to file a tax return within a specified date and in that case, we apply for a time extension to the deputy commissioner of taxes (DCT). Even in that case, if you get the time extension then you will also not be eligible to claim the tax rebate of 15 per cent. You have to calculate a tax rebate applying the rate at 7.5 per cent.
Suppose your eligible investment allowance on taxable income is Tk 200,000 and you are usually eligible to get the tax rebate at 15 per cent which is Tk 30,000. But due to failing to submit the tax return within December 31, you will get 7.5 per cent, which is Tk 15,000. So, you will lose this amount and have to pay this tax within your tax return filing.
This is the new major financial loss if any assessee misses the deadline. But there is another financial disadvantage which is not new this year. The simple interest rate shall be paid on the tax payable amount at 2 per cent per month.
Pay 2 per cent simple interest per month
In relation to the above example, assume that you had applied for a time extension for two months and got the approval from the DCT. Then for these two months you have to pay simple interest at 2 per cent per month on the tax payable.
Suppose your gross tax liabilityis Tk 50,000 and after deducting a tax rebate of Tk 15,000 as calculated above, and withholding taxof Tk 15,000, your tax payable amount is Tk 20,000 which is still due to be paid at the time of your tax filing to the tax office. So, on this due amount of Tk 20,000, you have to pay interest at 2 per cent for the two months, which shall be Tk 800. In total, including this interest, you have to pay Tk 20,800 with your tax return.
Now imagine you had been able to submit your tax return within December 31. Then you will get the full tax credit of Tk 30,000 and need not pay the additional interest of Tk 800. In that case, you have to pay only Tk 5,000. And that's why you should submit your tax return by December 31.
The author is the lead consultant at Taxpert