Those with annual income exceeding the basic exemption limit of Rs 2.5 lakh will have to file their income tax returns compulsorily. Even when there is no tax liability, the Income Tax Return (ITR) should be filed, if the total income exceeds the above limit.
'Income tax return' is a form in which taxpayers declare details of income, deductions, exemptions and taxes payable on their taxable income. Filing income tax returns is mandatory under Section 80C, 80D, etc. to claim tax deduction and other eligible exemptions such as long term capital gains exemption, which can eventually bring your taxable income to zero.
Filing an ITR not only makes you taxable, but also provides the following benefits:
Filing an ITR avoids penalties
Effective from FY 2017-18, the Income Tax Department imposes a fine of Rs 10,000 under Section 234F on individuals who do not file their income tax returns. Filing ITR on time avoids unnecessary penalties. Even if the penalty is set to be Rs 1,000 annually, if your annual income does not exceed Rs 5 lakh, as a law abiding citizen, it is your duty to file your tax return.
ITR receipt is a very important document
You need to protect ITR receipts carefully as they are very important proof of your income and payment of your taxes. This form is much more detailed than 16. It has a description of your total income and a description of your income from other sources.
ITR receipt is a useful document for hassle free processing of bank loans
When you apply for high value loans like home and car loans, most banks and NBFCs ask for the latest three years' ITR receipts. Lenders consider ITR to be the most authentic document supporting a person's income. Therefore, if you are planning to take a home or car loan in the future, then you should file income tax returns regularly.
Embassies from developed countries such as the United States, United Kingdom, Canada and Australia ask for ITR receipts from previous years to process your visa application. They are very particular about your tax compliance and therefore, you are asked to furnish previous ITR receipts. This helps them in assessing your income and ensures that you are able to take care of your travel expenses.
Compensate the loss in the next financial year-
Individuals cannot bear the loss of the current financial year until the next financial year until the ITR is filed. According to the Income Tax law, if the ITR is not filed within the due date, then individuals are not allowed to bear further losses and set them against future income. Therefore, it is important to file your income tax return on time to claim the loss in future years.
Filing ITR on time while keeping you tax compliant is beneficial in many ways.
Be a responsible citizen and file your taxes early to avoid last minute issues.
Since income tax can be an important part of your income, it is very natural to think about the benefits of income tax and filing returns for taxpayers.
Taxes are one of the primary sources of income for the government, with the money collected in the pre-checker being used for infrastructure construction and other development activities. The government spends money collected on defense, healthcare, infrastructure, education and starts various schemes for the public.
Apart from helping the nation, there are many personal benefits of filing income tax. For example, if you want to apply for a loan like a personal loan or a home loan, then you have to submit income proof such as your income tax return. In most cases, a lender will require you to submit an ITR of at least three years.
Another important advantage of income tax is that tax assessment documents serve as proof of address. There are many documents like passport, visa application, Aadhaar card, license etc., for which you are required to present address proof. Normally standard proofs such as ID cards are not valid for such documents. In such cases your income tax documents can be used.
Claim tax deduction
The biggest benefit of income tax returns is claiming tax deduction. There are several ways by which you can reduce your overall tax liability. If you have made such tax-saving investments, but paid more income tax in the form of TDS, you can claim a refund for the same by filing a tax return.
High value investment
High value investments such as purchasing a property are reported to the IT department. When you pay tax and file a return, these transactions can be reported and confirmed according to your income.
Who is required to file income tax return?
Any person whose age is below 60 years and whose annual income is more than Rs 2 lakh, will have to file income tax returns as per the Income Tax Act. For senior citizens, the cut-off is Rs 3 lakh, and for those who are above 80 years, the cut off is Rs 5 lakh.
However, there are several other criteria for filing income tax returns for an individual or a company. They are as follows:
It is mandatory for a company to file income tax returns