Benefits of ITR Filing

21 June 2023
8 min read
Benefits of ITR Filing
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An Income Tax Return is a document that taxpayers use to declare the specifics of their income, the tax due on that income, exemptions, and deductions for a specific fiscal year. Taxpayers are required to file ITRs for a number of reasons, but the main one is to claim tax deductions. 

In this blog, we present a thorough overview of Income Tax Return and their significance in order to explain the advantages of filing Income Tax Return and dispel any other questions raised by a taxpayer. We will go over every aspect of ITR benefits, including who must file an ITR and what happens if they do not. So, without further delay, let's get started!

Meaning of Income Tax Return

An Income Tax Return (ITR) is a form that you use to submit data to the income tax department about your earnings and taxes. The amount of tax due is determined based on the taxpayer's income.

The individual will be qualified to receive an income tax refund from the Income Tax Department if the return indicates that too much tax was paid during the year. A person or business that receives any income throughout a financial year is required by law to file a return each year.

The income may come from Salary, Business Profits, Rental Income from Real Estate, Dividends, Capital Gains, Interest Payments, or other sources. An individual or business must file their tax returns by a certain date. A taxpayer is required to pay the penalty if they miss the deadline.

Who is Eligible to File Income Tax Return?

The Income Tax Act states that only people or businesses that fall within specific income brackets are required to pay income tax. Entities or businesses that must comply fully file their ITRs in India are listed below:

  • Anyone under the age of 59 whose annual income exceeds ₹2.5 lakh is subject to this tax. The limit rises to ₹3 lakh for senior citizens (aged 60 to 79), and to ₹5 lakh for super senior citizens (aged 80 and above). It is critical to remember that the income quantity should be determined prior to take into account Sections 80C through 80U deductions and other Section 10 exemptions.

  • Additionally, registered businesses that produce revenue, whether or not they have turned a profit throughout the year, are required to file for an ITR along with those who wish to request a refund for any overtaxes deducted from income taxes paid.

  • Persons with assets or financial stakes in organizations based outside of India are also eligible to file for an ITR along with NRIs who generate more than ₹2.5 lakh in income or accruals during a single fiscal year and also, foreign businesses that profit from agreement advantages on transactions conducted in India.

  • However, not everyone is required to file an ITR.

    In India, filing an Income Tax Return (ITR) is only necessary if a person's taxable income for a fiscal year exceeds the ₹2.5 Lakh exemption threshold. If an individual's gross income is less than this exemption limit, they do not need to file a NIL tax return.

    For several reasons, it is still advised to file a tax return even if it falls below the minimum threshold. You should always file a tax return if you received any income during the fiscal year from any source. 

Also, Read - How to File Income Tax Online

Furthermore, the benefits of ITR Filing are mentioned in the section below.

Top 10 Benefits of Filing Income Tax Return in India

1) Excess TDS Claim

Tax can be taken from your salary, Fixed Deposit, or any other source, even if your income is not taxable. For instance, if your total income is under ₹2.5 Lakhs but you received ₹1 Lakh from an FD in the bank, the bank is required to deduct 10% tax from this amount.

In this situation, the tax that was subtracted by filing an ITR can be repaid. In plain English, a person must submit a tax return in order to claim any TDS that was taken at the source.

2) VISA Application

The likelihood that a visa application will be rejected or flagged as problematic decreases if ITR documentation is submitted with the application. The tax return illustrates the person's civic responsibility.

Several countries now demand ITR for visas due to rising security concerns. For instance, even if you had no income during those three years, you must submit the returns from the previous three years when applying for a Schengen Visa.

3) Establishing Losses

If you want to carry over a loss from the previous year's stock market, you must file a return, even if it is NIL.

If you want to offset those capital losses, you should file an ITR whether you obtain any profit or not. Additionally, if a person owns foreign stocks, they must file an ITR in accordance with income tax regulations.

4) A Reliable Proof of Address

The Income Tax Return is valid as address verification. Even an Aadhaar Card can be obtained using it. Aadhar Cards, licenses, passports, and other documents like those are all required to have address proofs.

Frequently, these documents do not accept common forms of identification like ID cards. Your Income Tax Return can be applied in such cases.

5) Authentic Evidence of Your Earnings

Form 16 is typically given by employers to their employees as proof of income. The ITR Filing form serves as actual income verification for self-employed or independent contractors.

It includes a thorough breakdown of a person's income and expenses for the entire fiscal year.

6) For Purchasing High Coverage Insurance

More people are purchasing life insurance policies for over ₹50 Lakhs. However, insurance companies will not accept it unless you show them your ITR records that show your yearly income.

Your working income will determine how much coverage you receive, and ITR shows the insurance company that you make a lot of money.

7) A Crucial Document for Loan Application

The bank requests certain documents from you when you apply for a loan to buy something, like a car or a new home for your family or business. Aadhar Cards, PAN Cards, Licenses, Photo Identification, etc., are some of the documents that might be required.

Additionally, your income proof is one important document that is requested. ITR for the previous three years was frequently requested by banks. This is done to determine whether you will be able to repay the loan given your past and present financial circumstances.

ITR is helpful not only when requesting bank loans but it can also help you apply for a credit card. Before issuing you a credit card, credit card companies will also request your prior earnings and tax returns.

8) Scholarship Advantages

Various authorities view an ITR as a source of income documentation (both government and private).

For instance, you can submit an ITR to claim specific institute and/or university scholarships. The ITR aids in establishing the prospective student's ability to prove their income, and insurance companies also accept them as acceptable documentation.

9) Funding for Startup Ventures

When planning to launch a new company or grow an existing one, you might require funding from outside sources like venture capitalists or seed investors.

These investors might inquire about the specifics of your ITR in order to evaluate the business's financial stability and profitability. They could cross-check the data in the audited report using your ITR forms as well.

10) Benefits for Independent Contractors & Professionals

Self-employed or independent contractors do not receive Form 16. Their ITR is frequently the only record that demonstrates they have filed income taxes. Without this evidence, they might run into funding problems and transactional issues.

Importance of Filing Income Tax Returns

Many people appear to believe that filing tax returns is optional, so they disregard it as pointless and burdensome. This is not a very wholesome way to view tax filing.

Every year, filing tax returns is viewed as a moral and social obligation of each and every responsible citizen of the nation.

It serves as the basis on which the government calculates the amount and means of citizen expenditures and offers the assessee a platform to occasionally request refunds in addition to other forms of relief.

Effects of Failing to File An ITR

Now that you are aware of the benefits of filing an Income Tax Return, consider some of the repercussions that could result from failing to do so:

  • If a person is subject to Income Tax, a notice will be sent to them.

  • The liable body will accept a thorough letter and any necessary supporting documentation if someone is unable to submit Income Tax Returns for a legitimate reason. In this situation, they may request relief from condonation.

  • The IT Department will fine an individual in the event that their ITR is filed after the deadline. Generally, if one's income exceeds ₹5 lakhs, one must pay a penalty of ₹10,000. The fine is ₹1,000 if income is less than this amount.

  • Assesses may face harsh detainment in serious situations like tax evasion.

  • Some people, however, are exempt from the requirement to file an income tax return. According to the Finance Minister's announcement in the Union Budget for 2021, 75 years or older seniors can receive a full exemption from filing ITRs.

Conclusion

As you might have understood now, there is no reason for you to avoid the annual ITR Filing process.

Pay your taxes on time, and submit your returns. The advantages are what truly discern the difference.

Disclaimer: This blog is published in the public interest and is only intended for informational and educational purposes.

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