THE NEED & BENEFITS OF FILING INCOME TAX RETURN (ITR)

In this post let’s demystify some of the basic concepts & benefits of Income Tax Filing.

Individuals, mostly salaried, are not worried about their tax returns since they believe their TDS has been deducted by their employer and the obligation of tax payment has been completed. But that’s not entirely true. In this article, we will demystify some of the basic concepts of Income Tax for a layman to understand and keep their tax records up to date.

As per Income Tax Act, 1961, Income Tax Return (ITR) is a form in which the assessees (tax payers) have to provide all the details related to their total Income, Deductions, Exemptions, Perks, Allowances and also the calculation and payment of tax at the end of every financial year. Let’s start with the benefits of filing an ITR for an individual.

Mandatory if Income above basic limit: Any person, less than 60 years of age, who is a resident of india and has income more than 2,50,000 has to mandatorily file ITR. For individuals above 60 years, but less than 80 years, the exemption limit is 3,00,000 and for individuals aged 80 years or above, the exemption limit is Rs. 5,00,000. Irrespective of the tax deduction (TDS) by your employer, you have to file your returns.
Claim Exemptions & Deductions: Filing ITR not only keeps the assessee tax-compliant, but is also essential to avail all deductions and claim exemptions under the law. To give a simple example, long term capital gain for sale of shares is exempt upto 1 lac per year, the benefit of the same can be claimed in the ITR. This helps us show all our income in records and doesn’t increase our tax liability. Another common example would be, in case your employer has not considered the house rent allowance exemption, you can claim the same while filing tax returns and save on taxes.

Loan approval: Nowadays getting a loan from the bank is not a simple task considering there are numerous frauds going around. Hence, bankers are vigilant and give utmost importance to the documents of an Individual. If you want to take a personal loan or home loan or even a car loan, you must be ready with your ITR. To get a loan, the majority of banks require your tax return and income tax proof for the previous three years. This assures the bank about your Income proof and the chances of defaulting on a loan is less.

Foreign Education Loan / Residency Purpose: In order to shift or move to any other foreign country, whether for education or residential purposes, an individual requires a visa. ITR is one of the most important financial documents to determine your financial status and confirm Income proof, the consulate general / embassy makes it mandatory to submit your ITR to process your visa.. This helps them to assess your income and ensure you’ll be able to take care of the expenses after you move to the desired country. Some authorities ask for the most recent ITR while others demand ITR for the last three consecutive years.

Carry forward of losses: Filing your return before the due date is important and helpful, one of the major benefits of filing ITR on time is you get to carry forward your losses. In simpler words, loss you incur in the current year can be carried forward and used to reduce your tax liability in future years against your profits. Losses can be carried forward upto a period of eight subsequent years depending on the source of Income. If you don’t file your ITR before the due date, you cannot take the tax benefit of your losses in future years.

Legal proof of your address and income: ITR is the basic legal proof of your Income. If you work with a reputed organisation, your payslip is accepted as an income proof, however, in case you’re self-employed professional or freelancer, you won’t have pay/salary slip. The only document available in such a case is your ITR. This is the only legal document of your Income acceptable.

Avoiding Penalty & Interest: If you ignore and don’t file your ITR on or before the due date you will be penalized for late Income Tax filings. The penalty can be upto 5000/- depending on your Income u/s 234F. If you haven’t paid your Income Tax then there would be interest levied on the same u/s 234A, 234B & 234C.

Eligible for higher insurance: It goes without saying Insurance has become a necessity for every family to cover various risks. The amount of your Income determines the amount of Insurance Policy you’re eligible for. Insurance companies before issuing policies ask for your ITR which determines whether you’re eligible for the specific policy. Hence, ITR is an important document for taking large policies.

Government tender: All the government tenders are awarded online and has a e-tendering process. ITR is one of the documents that is required to be uploaded to be eligible to apply for the tender. If you are planning to expand your business and apply for government tenders it is beneficial to have the last 3 years ITR copy. It helps the government agency determine your eligibility status or the particular tender.

Responsible Citizen: Filing your ITR regularly is a sign that you’re paying taxes on time and contributing to the nation’s development. Being a law abiding citizen is always helpful and satisfactory. The taxes constitute a major source of government revenue which then spends the collected amount for the common benefit of the society and building infrastructure, promoting tourism, defence, healthcare, education and various other schemes for the masses.

Claiming of Refunds: One of the biggest benefits of filing ITR is claiming the extra tax that has been deducted by your employer/company. There are also several tax saving methods which can help you plan and reduce overall tax liability. Based on the above you can claim your tax refund.

Now you know, for sure, there are several benefits of filing an ITR, you would not want to miss them out, right? Not just the cases mentioned above, filing an ITR can turn out to be essential and helpful in several other scenarios as well, right from preventing extra payments in the form of interests and taxes to experiencing a seamless credit card application process.

We would end this with the beautiful quote by Oliver Wendell. Holmes,