As responsible citizens, we must pay income tax on Time. The first and foremost reason is that not filing returns may attract a penalty for a few income classes.
Nevertheless, the money paid as income tax provides basic amenities like roads, schools, hospitals, rations, security, etc. Filing a Tax Return enables the authorities to have proper knowledge regarding your income, expense, and other tax information. There are several benefits associated with filing Income-Tax Returns, we have listed them here. Let us understand the importance of tax returns through them-
An Income Tax Return (ITR) is a form issued by the government where individuals declare their income, expenses, deductions, exemptions, taxes paid, etc. Individuals whose income is less than Rs 2,50,000 are not required to file Income-Tax Return. It is mandatory to file an income tax return to be eligible for deductions under sections 80C, 80D, etc., for individuals whose income is more than 2,50,000. All the deductions will help you to bring down your taxable income. So the benefits of filing ITR are:
The first document that any bank will ask if you are applying for a personal or business loan will be the copies of the past 2-3 years of Tax Returns filed. The copies of the Tax Returns filed are considered the most genuine income proof for an individual. Since the issuance of any loan depends on the repayment capability of an individual, the tax returns filed are authentic sources of legitimate income proof.
Advantages of Tax-Return filing is even more for businesses, as businesses can’t provide Salary slips. So businesses must provide Tax Returns along with financial Statements to apply for business loans.
Countries like the US, UK, and many other European countries have made it mandatory to submit acknowledged tax returns as Income proof. They want to ensure that you have enough Income and Business in INDIA to return. The filed tax returns are also necessary when you plan to send your children abroad for studies. As a sponsor, you need to present the acknowledged tax returns to get the Student Visa for your children.
Income tax is deducted at the source for most salaried persons, and then the salary is credited to the bank account. When you file for the tax return, you showcase all your income, expenses, and deductions. So if your total tax paid is more than your actual tax to be paid, then the extra tax deducted will be credited to your bank account. This is a huge benefit of filing a Tax Return, as the refund is only possible if you file for a tax return.
Many of us invest in the equity market. So when you invest, you either incur capital gains or losses. If there is a capital loss for any particular year, then that loss can be carried forward for eight consecutive years in the future to adjust against capital losses. This benefit will only be available if you file an income tax return regularly.
The Income Tax Department has levied a penalty of Rs 10,000 under section 234F on individuals who don’t file Tax Returns. So if you file Tax Returns regularly on time, then you can easily avoid the penalty. It is mandatory for individuals whose income is more than Rs 2,50,000 to File Tax Returns. So we should avoid penalties and enjoy the benefits of Tax Returns on time.
The Income Tax law has made it mandatory to disclose possession of any foreign asset by an individual in the Tax Return. Failing to comply with the regulation may attract a heavy penalty and is also considered an economic crime. So regular filing of Tax Returns will save you from legal trouble.
Regularly filing tax returns will help you become a responsible citizen. Though it is mandatory to file a tax return once you cross a certain income threshold, still it should come naturally. Disclosure of all income from multiple sources and filing for the tax return will help the government keep track of its coffers. The money will be used for the future developments of our country.
Suppose due to some investigation you get a notice from the Income Tax department that some previous year’s tax is pending. So to reply to that notice, you will need a copy of the tax return for that particular year. So it is always advisable to keep copies of 10 years of tax returns as a bare minimum and, in the best case, 15 years.
Taxable income includes salaries, wages, bonuses, unearned income, and other investment income. It excludes all tax-saving investments done in a financial year. This is the base amount that will be used for the calculation of your tax liability.
You can take help from tax professionals, chartered accountants or public relations officers from the local office of the Income Tax Department. You can also take help from tax return preparers.