Tax is levied on your income once it surpasses a certain level. To pay the taxes, you have to file an Income Tax Return.
ITR is a form wherein you enter details regarding the income you have earned in the past financial year (1st April-31st march). Filing an ITR is important and applies to everyone be it a salaried individual, Partnership, or even a HUF.
Filing income tax returns is often seen as a cumbersome process by the majority of the people. That is the reason why many decide to skip filing returns.
As a responsible citizen, you need to make sure that you file your returns every year. This is a moral duty of every working Indian.
Filing ITR can be useful to you as well. Here are the various ways in which filing an Income Tax Return can benefit you.
1. It Acts as a Legal Document
Income Tax Return holds immense legal value. It is recorded with the government. It acts as legal proof in two ways,
a. Identity Proof
The return that you fill can be used as identity proof in various scenarios such as while applying for an AADHAR card, or any other document. The government accepts it as a proof of address as well.
b. Income Proof
As discussed, the ITR form contains a detailed list of all your incomes and expenses. On this basis, the tax you have to file is calculated.
Thus, ITR can also be used as income proof as some transactions such as the purchase of property do require you to show proof of income.
This can come in handy for the ones who are self-employed and don’t receive Form 16 .
2. Can help you Claim Deductions
To reduce the burden on the taxpayers and to encourage more people to pay their taxes, the government allows certain deductions to you.
a) These deductions and exemptions can be availed in some investments and thus help in reducing the tax you ultimately pay.
b) TDS and rebates can also be claimed back.
But to have access to these tax benefits, you are required to file an income tax return. If you have not filed ITR you cannot claim deductions as well.
3. Important Document While Applying for Loans
When you decide to apply for a loan to purchase something, say a car or a new home for your family or for business, the bank requires you to submit some documents such as
a) Aadhar card
b) PAN card
c) Driver’s license
d) Photo ID etc
One important document asked is your income proof. Banks generally asked for ITR for the last three years. This is done to assess your past and current financial situation and whether you will be able to pay the loan or not.
Not only while applying for loans from the bank, but ITR can also be useful to get you a credit card as well. Credit card companies also ask for your past salary and returns before issuing you the card.
4. Helps if Planning to go Abroad
Going abroad involves some procedures to be followed. If you do not file your ITR, then it can deter your plans to go abroad. ITR form is one item in the list of the documents that are required by the countries that you want to visit.
This is because of the following:
a. Having a history of filing income tax returns helps your case and improves your chances of getting visa approval.
b. It gives details about your financial situation to the embassy.
5. Avoid Penalty and Punishment
The taxes that apply to you are governed by the Income Tax Act 1961. Thus, you are required to pay taxes if you fall above the exempt criteria.
So, if you are eligible to pay taxes on your income and yet still fail to file your Income Tax Returns, then you attract charges
The income tax officer can levy a penalty of up to Rs 5000 Rs. Other serious punishments can also occur if you do not file returns.
Thus, you should file ITR to be safe from such penalties and punishments.
6. Losses can be Carried Forward
Section 70 and 71 of The Income-tax Act 1961 contains some provisions for carrying forwarding losses of a particular year to the subsequent year. This means that you can move your loss to the next assessment year.
Here are a few examples:
a. Losses from house property can be carry-forward till the next 8 assessment years and can be set off from income from house property.
b. Loss from business can be carried forward and paid with the future income from the business.
If you do not file an Income tax return, you cannot carry forward or set off your losses.
Filing of the Income-tax return not only helps you but also helps the nation. The tax that you pay is used by the government to build infrastructure and to improve other facilities of the nation such as medical, defence, etc.
The more people file, the more can government spend and provide us with a good country.