Companies will lose tax holiday benefits and deductions available under the Income Tax Act if they do not file their returns on time. They will be liable to pay penalties for late filing of returns.

This provision is contained in the Budget. It will be effective from the current financial year. "Many companies claiming tax holidays and deductions are not filing their tax returns regularly. Companies have sufficient time to file their returns and they should not wait for the last date," a finance ministry official told Business Standard.

For companies, the financial implication of this proposal can be massive. If a company does not file returns by the due date, it will end up paying tax on even that part of its income which would otherwise have not attracted tax.

Infrastructure development companies, 100 per cent export oriented units, those operating cold storage plants and industries in the Northeast may end up paying tax if they delay in filing returns.

Infrastructure development companies that get tax benefits include telecom firms, entities involved in developing roads, ports, airports, industrial parks and special economic zones and those handling water and waste management.

The Budget has introduced Section 80AC in the Income Tax Act and has proposed an amendment to Section 10B. This is aimed at not allowing deductions under Sections 10B, 80-IA, 80-IAB, 80-IB and 80-IC if companies do not file their returns on time.

Tax experts are divided on the issue. "The provision is perfectly valid. Even in the existing law, carry-forward of losses is allowed only if returns are filed on time," Vinod Kumar Gupta, VK Associates, said.

"If this provision is passed in the Finance Act, it will lead to a lot of litigation. As an alternative, we have suggested to the government to increase the penalty for not filing or delayed filing," Ved Jain, chairman, Fiscal Laws Committee of the Institute of Chartered Accountants of India, said.

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