Late fee of GST return is allowed as expenses in Income Tax?

Last Updated On: Oct. 10, 2020, 11:48 p.m.
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LATE FEE OF GST RETURN IS ALLOWED AS AN EXPENSE IN INCOME TAX?

Introduction:

While computing Profit and gains from business or profession, there is a certain expenditure that is disallowed which means the IT department does not allow the benefit of such expenses, and the assessees are required to pay taxes on such expenditures by adding them back to the net profit.

The expenses which are allowed as a deduction against Profits and gains from business are covered under Section 30 to Section 37 of the Income Tax Act.

Section 37(1) states that any expenditure except expenditure which is included in Section 30 to 36 i.e capital expenditure or personal expenses of the assessee expended wholly and exclusively for the purposes of the Business or Profession shall be computed in income chargeable under the head Profit and Gains from Business or Profession.

What is Late Fee?

According to GST laws, Late Fee refers to the fees which are charged when there is a delay in filing a return. It can also be referred to as an overdue fine. The Late Fee is also applicable for delay in Nil returns.

In the view of providing relaxations to the GST Taxpayers, the government decided to surpass the maximum late fee of Rs.500 for the form GSTR-3B for the tax period July 2017- July 2020.

The reduced fee will be levied only if returns are filed before September 30, 2020.

What is Disallowance under section 40(a)(ii)?

According to section 40(a)(ii), any sum paid on account of any  rate or tax levied on the profits or gains of any business or profession or assessed at a proportion of, or otherwise on the basis of, any such profits or gains shall not be deducted in computing the income chargeable under the head “Profits and gains of business or profession”

Section 40(a)(ii) only deals with the amount in relation to the rate of tax levied on profits and gains from business or profession. Therefore, the GST late fee will not be disallowed under sec 40(a)(ii).

Will late fees be allowed as a deduction under Section 37?    

The condition to be satisfied with respect to the allowance of deductions u/s 37 is that it should be for the purpose of business or profession and it should not be paid for infraction of laws. Now the question is whether GST late fee will come under the infraction of law.

Offense in general means a breach of Law or Act or any illegal act and penalty is defined as the punishment for committing an offense.

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