Income Tax Return (ITR) is a form that must be filled out to file details of your income and the tax liability to the Income Tax Department. The taxpayer must mention the income for the financial year correctly and the tax incurred on it. After calculating the tax liability, if it appears that the individual has paid excess tax, he is eligible to receive a refund from the IT Department. This article explains the benefits of filing ITR. It will also discuss the advantages one can enjoy if ITR is filed in time and the consequences one has to face if ITR is not filed.
Did you know?
The taxpayers have to pay the penalty if they fail to file the IT returns within the stipulated period.
Is Filing an Income Tax Return Mandatory?
According to the Income Tax Law, the Tax return must be filed every financial year. Each individual or business falling under the taxpaying bracket should comply as filing of ITR is mandatory.
Importance of Filing an Income Tax Return
- The capital losses and gains can be adjusted by filing an Income Tax return. If an individual's total earnings are below the basic exemption limit, they are exempted from filing an ITR. However, the capital losses can be adjusted against the capital gains. It can be arranged that the losses be carried forward for the next eight years.
- Claiming tax refunds will be easier if the ITR has been filed. After deducting the tax, a tax refund can be claimed only by filing an ITR for that financial year. E.g., if an NRI is paying TDS or TDS is being deducted, he must file an ITR to become eligible for a refund. The refund can be claimed online after the ITR is filed.
- Filing regular and accurate ITR makes it easier to get loans. Income Tax Return is an important financial document that shows your accurate income in a single year. The financial institutions providing loans ask for the ITR when an application for a loan is filed. Hence, filing returns in spite of having a lower taxable income is always beneficial.
- If the earnings exceed the basic exemption limit and the taxpayer wishes to get the advantage of various exemptions to lower the income amount, they must file an ITR. Despite not having any tax liability, an individual must file a tax return to avail of deductions in the future.
- If an individual possesses any foreign assets, then ITR must be filed accurately. Any immovable property or bank account too is included in this provision. Since non-compliance will be taken as a severe economic offence, a heavy penalty might be imposed.
Also Read: Step-by-Step Guide for E-Verifying Your Income Tax Return
Benefits of Filing Income Tax Return
There are several advantages of filing ITR.
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Important Legal Document
It is recorded with the government and can be used both as identity proof and income proof. It comes in handy when applying for an Aadhaar Card or any such document. Since the ITR contains income and expenses details, it can also be used as proof of income and as a substitute for proof of address.
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Helpful in Claiming Deductions
The government provides certain exemptions and deductions to the taxpayer to reduce the tax burden. One can also claim the TDS and rebates; these exemptions can be availed only if the Income Tax return is filed.
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Important Document when Applying for Loans
The banks and other financial institutions providing loans require certain documents for verification before granting a loan. Documents providing income proof are one of the documents required. Generally, the ITR of the last three years is asked to assess the applicant's financial standing. An ITR is helpful while applying for a credit card.
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Essential Document To Go Abroad
The ITR form is required to verify various points, like the applicant being a regular taxpayer and their financial situation.
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Avoid Penalty and Punishment
These taxes are imposed as per the Income Tax Act, 1961. Every citizen or business who lies above the exemption criteria has to pay the tax. In case of non-compliance or failure to file income tax returns, a penalty of up to 5000 can be imposed. Other consequences, too, might have to be faced. The ITR should be filed well in time to avoid such a situation.
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Losses can be Carried Forward.
Section 70 and 71 of the IT Act, 1967 have provisions to help carry forward various losses to the next assessment year.
- It is permissible to carry the losses from House property to the next eight consecutive assessment years. These losses can be set off through income incurred from the house property.
- Business losses, too, can be carried forward and set off similarly with income from the business. This convenience is not available without filing an Income tax return.
Also Read: Income Tax Rebate Under Section 87A
Benefits of Filing ITR if Not in the Bracket
If an individual's yearly earnings are below the taxable income, an ITR can be filed. In such a case, a NIL income tax return can be filed. One gets several benefits by filing NIL ITR. The ITR receipt serves as:
- An income proof.
- An address proof.
- Filing a NIL income tax return can help when applying for credit cards.
Should ITR be Filed for Deceased Persons?
If an individual dies sometime in the middle of a financial year, their legal heir should file the ITR on their behalf. The ITR in such a case is calculated on earnings till the date of demise.
Consequences of Not Filing ITR
If an individual comes under the taxable income bracket but fails to file ITR may have to face the consequences. Since it is an economic offence, the IT department will notify the individual who failed to file the ITR.
In case an individual cannot file an IT return owing to a genuine problem, the authorities will accept a letter mentioning the reason with supporting documents. The individual may apply for condonation relief. Late filing of ITR results in fines. Usually, the penalty is ₹10,000/- if the income is more than ₹5,00,000/-. In case the income is less than ₹5,00,000/-, the penalty is decreased to ₹1,000/-. In case of tax evasion or wrongful income presentation, the individual may be imprisoned.
Also Read: Understanding Income Tax Allowances and Allowed Deductions for Salaried Individuals
Conclusion:
We hope this article has been of help in acquainting you with the benefits of filing ITR. Here at Khatabook, we provide precise and accurate information to our readers. The timely filing of correct income tax return benefits the individual and the nation. The government uses the tax paid by the taxpayer to build a strong infrastructure and strengthen the country.
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