Have you recently sold a property, earned substantial interest on a bank fixed deposit (FD), or invested in cryptocurrency? If so, TDS (Tax Deducted at Source) would certainly have been deducted. People often assume that once the tax is deducted, the government has received its share and no further action is required on their part. However, this is a major misconception.

Having TDS deducted does not exempt you from filing an Income Tax Return (ITR). In fact, filing an ITR becomes even more crucial after TDS deduction, as it allows you to properly account for the deducted amount or claim a refund. The deadline for filing the return for the Assessment Year 2026-27 was July 31, 2026. If you missed this date, you should be aware of the associated rules and consequences.

**Paying Tax Isn't Enough; Filing ITR is Essential**
Many people wonder why they should file a return when their share of tax has already been deducted. Puneet Agarwal, founder of KoinX, explains that under income tax laws, paying tax and filing a return are distinct responsibilities. Mere tax deduction does not provide the Income Tax Department with a definitive record of your income.

Unless you file an ITR, there is no proper reconciliation between your TDS, actual earnings, and investments. Consequently, the department does not attach significance to tax payments made without filing a return. In such a scenario, the system may automatically issue a tax notice due to the lack of reconciliation.

**Risk of Penalties**
If your total annual income is less than ₹2.5 lakh, you can claim a refund for the TDS deducted. However, you will receive this money only if you file a return. While the department might not take punitive action against you for failing to do so, you would effectively be leaving your own money with the government. On the other hand, if you have a tax liability and fail to either pay the tax or file your ITR, the department may issue a notice and initiate legal action against you. According to tax expert Karan Sachdev, even if you have paid your entire tax due, filing the return after the deadline (a 'belated return') still attracts a late fee. If your income exceeds ₹5 lakh, this penalty can go up to ₹5,000. Additionally, a separate penalty may be imposed for under-reporting income.

A Double Whammy for Crypto Investors
For those investing in digital assets or cryptocurrency, failing to file a return can prove costly. The biggest downside of not filing your ITR on time is that you lose the right to set off your losses against future profits.

Crypto regulations are already quite stringent. Even if your total income is below ₹2.5 lakh, but that income is derived from cryptocurrency, you are liable to pay a flat 30% tax on it. In this instance, the benefit of the basic exemption limit—usually available to ordinary taxpayers—does not apply. Since crypto exchanges routinely share all transaction details with the tax department, the risk of receiving a notice is particularly high if you fail to file your return.

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