Defective Return, Late Fee and Consequences of Non-Filing

Understand Defective Return, Fees and Consequences of Non-Filing

Key rules to remember

Fee for failing to file by the due date - section 428(a)

Total income ≤ ₹5,00,000 → ₹1,000; otherwise → ₹5,000

Applies when a return required under section 263 is not furnished by the due date in section 263(1). Test total income, not gross receipts.

Fee for filing beyond nine months - section 428(b)

Total income ≤ ₹5,00,000 → ₹1,000; otherwise → ₹5,000

A separate default. It applies only when the return under section 263(5) is furnished beyond nine months from the end of the relevant tax year.

Fee for failure to audit accounts - section 428(c)

Delay up to one month → ₹75,000; thereafter → ₹1,50,000

Applies where accounts are not audited and the report is not furnished as required by section 63.

Fee for failure to furnish accountant's report - section 428(d)

Delay up to one month → ₹50,000; thereafter → ₹1,00,000

Applies to the report required by section 172.

Payment before filing - section 266(1)

Amount to pay before filing = (Tax on total income - amounts listed in section 266(2)) + interest + fee

The amounts in section 266(2) include tax already paid, tax deducted or collected at source, relief under section 157, foreign tax relief under sections 159 and 160, and the tax credits listed there. Interest and fee are paid in addition to the tax. The return must carry proof of payment of tax, interest and fee. Do not confuse this list with the list used for the interest base in section 266(4).

Order of adjustment of short payment - section 266(3)

Payment adjusted first to fee, then to interest, then to tax

Any balance left is tax still unpaid.

Interest under section 423 (base) - section 266(4)

Interest = Base tax × rate given in the question × period of delay

Base tax = tax on total income declared in the return - advance tax - TDS/TCS - listed reliefs and credits under section 266(4). The rate and the month-counting rule are not in the supplied law, so use those stated in the question.

How to solve Defective Return, Fees and Consequences of Non-Filing questions

1. 1Find the due date and the actual date of filing. Work out whether the return missed the due date, and whether it was furnished beyond nine months from the end of the tax year.
2. 2Check whether the return was defective. Apply the time limit and effect given in the question, as they are not in the text supplied here.
3. 3Compute total income and pick the fee under section 428(a) or (b): ₹1,000 if total income is up to ₹5,00,000, else ₹5,000.
4. 4Compute the base tax for interest under section 266(4): tax on total income less advance tax, TDS/TCS and listed reliefs and credits.
5. 5Compute interest using the rate and month-counting rule given in the question. If the question asks for payment order, apply fee first, interest second, tax last.
6. 6Add any audit-related fee under section 428(c) or (d) if accounts or reports are missing.
7. 7If the question asks about losses, apply the carry-forward provisions from that chapter. Do not assume one rule for all losses.
8. 8Write the final figures under clear headings and give one line of conclusion.

Quickest way: Three-line scan for MCQs and short answers

Common mistakes in Defective Return, Fees and Consequences of Non-Filing

• Applying the ₹5,000 fee because gross turnover is high.

  Students look at receipts, not total income.

  Fix: Use total income. Up to ₹5,00,000 the fee is ₹1,000.

• Ignoring the month-counting rule stated in the question when computing interest.

  Students count only complete months by habit.

  Fix: If the question says interest runs per month or part of a month, round every part-month up. For example, 2 months 10 days counts as 3 months.

• Calculating interest on total tax instead of tax after advance tax and TDS.

  Students skip the reductions in section 266(4).

  Fix: Deduct advance tax, TDS/TCS, and the listed reliefs and credits first.

• Adjusting a part payment to tax first.

  Common sense says clear the principal first.

  Fix: Section 266(3) is clear: fee first, then interest, then tax.

• Filing the return without first paying tax, interest and fee, or without proof of payment.

  The word 'filed' misleads students into thinking that filing alone is enough.

  Fix: Section 266(1) requires payment before filing and proof of payment with the return. The rules on defective returns are in a different provision that is not in the supplied text, so check the Act and apply the period and effect given in the question.

• Treating clauses (a) and (b) of section 428 as one default or charging both fees for one late return.

  Both clauses carry the same amounts, so they look alike.

  Fix: Clause (a) is failure to file by the due date. Clause (b) arises only when the return is furnished beyond nine months from the end of the tax year. Read the facts of each clause.

Worked examples