While filing income tax returns (ITR) takes time, the benefits far outweigh the hassle. According to income tax legislation, filing an ITR is mandatory for some and optional for others; nonetheless, filing one is essential regardless of whatever group one belongs to.
Also Read: Income Tax Return Filing
Taxpayers use the ITR form to submit their income and assets to the Indian Income Tax Department. It comprises information regarding the personal and financial details of the taxpayers. ITRs are basically a taxpayer’s self-declaration of their earnings, assets, and taxes paid. While it is most commonly performed electronically, senior citizens can also file it manually.
Every natural or artificial person who is subject to specific exemption restrictions, whether incorporated or not, is obliged to file an ITR. According to the legislation, a taxpayer can be an individual, an artificial judicial person, a body of individuals (BOI), a Hindu undivided family (HUFs), an association of persons (AOP), a firm, a trust, a company, or a society.
Because ITR forms have no attachments, taxpayers are not required to provide any documents with their income tax return, such as investment proof, TDS certificates, and so on. It is, however, a good idea to have these documents on hand and send them to the IRS when needed, especially in situations like assessment and investigation.
The process is complete when the taxpayer’s ITR is e-verified using an OTP sent to his or her Aadhaar-registered cellphone number or through online banking.
The Benefits of ITR Filing on Time
Transferring unabsorbed losses to future years
If ITRs are filed on time, losses from the current fiscal year can be carried forward to the next fiscal year.
Interest liability is avoided
You must pay all outstanding taxes before submitting an ITR. If you file your ITR beyond the due date, you will be charged an extra 1% interest per month or part of a month on the outstanding unpaid tax under Section 234A of the Act. It’s best to pay your taxes and file your ITR within the deadlines.
Avoid Section 234F penalties and late filing fees
You may be charged a late fee of up to INR 10,000 if you file your ITR after the deadline. It is in addition to any other penalties imposed by the Act.
Application of Different ITR Forms
There are now seven ITR forms used to file tax returns by distinct groups of taxpayers, ranging from ITR 1 to ITR 7. The ITR form that applies to each taxpayer is decided by several elements, such as the taxpayer’s legal status and category, the amount of income obtained, the sources of income earned, and so on.
Why File an ITR Return?
Noncompliance with this legislation may subject Indian taxpayers to several fines.
Apart from the legal need, if a taxpayer’s income does not exceed the exemption limit, it is recommended that he or she submit an ITR to reap the following benefits:
Access to loans and credit without the hassle
Regular ITR filing reveals constant income and that the person has been paying taxes on time. Financial institutions use ITR files from the previous year to approve loans and other credit lines like overdrafts, credit cards, cash credits, and bill discounting. It also plays an important role in determining a taxpayer’s credit history through the Credit Information Bureau (India) Limited (CIBIL) score.
To facilitate visa processing
ITRs are valid proofs of income that are routinely scrutinized by visa processing countries. Although not needed, it facilitates the acquisition of visas.
It serves as verification of income and address.
ITRs can also be used to show where you live and how much money you make. Unlike employed individuals who receive paychecks and have tax withholding certificates, ITR files are useful for self-employed individuals who do not have any income proof to present.
Getting a tax refund
Tax refunds are widespread, with millions of people claiming them every year. Taxpayers who paid more than their tax amount may be eligible for a refund. Term deposit interest and dividend income may be excluded for those with income below the exemption level. Regardless of the exemptions, withholding of taxes is likely. You can use ITR filing to get a refund of taxes withheld from your paycheck.
In order to acquire tax clearance certificates
For high-value or international transactions, such as the sale or transfer of assets, Section 281 of the Act requires the presentation of a tax clearance certificate. To obtain this tax clearance certificate, you must first file a regular ITR.
Allows one to apply for government contracts
If you want to participate in government projects by submitting tenders, you’ll need ITRs from the previous few years. It is one of the determining criteria in one’s ability to apply for such tenders.
It serves as documentation of accrued earnings
An ITR essentially indicates how much money you’ve made over time and where it came from. These particulars are crucial during high-value transactions, particularly those involving property purchases, investments, and so on.
Beneficial if the deceased taxpayer does not leave an inheritance deed
The ITR serves as a record of a dead taxpayer’s assets and obligations over the duration of their lifetime. This may make it easier to pass these assets to their legitimate heirs in a peaceful manner.
Suggested Read: Income Tax Planning