If you’re an Indian citizen earning above the Rs.250,000 basic tax exemption limit, filing an Income Tax Return (ITR) is common practice. But did you know there are perks even if your income falls below this limit? Let’s delve into the “benefits of filing ITR” to understand why it’s recommended, uncovering the advantages that go beyond the numbers. Let’s explore why filing your ITR can be beneficial, regardless of your income level.
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What is an income tax return (ITR)?
Filing an income tax return (ITR) in India is like presenting a financial snapshot to the IT department. This form captures all your income, assets, and financial moves. It’s your personal declaration, detailing earnings, assets, refund claims, and taxes paid. Though it’s usually done online, senior citizens have the option to go manual.
Who Needs to File an Income Tax Return?
Taxpayers enjoy the flexibility of deciding whether to file an income tax return (ITR) based on various factors. Despite the choice, filing ITR becomes mandatory under certain conditions:
- Individual income exceeds the basic exemption limit (Rs. 2.5/3/5 lacs).
- Ownership of international assets with foreign income sources.
- Electricity bill payment exceeding Rs. 1 lakh.
- Aggregate bank deposits over Rs. 1 crore in a fiscal year.
- Expenditure of over 2 lakhs on foreign travel in a year.
Regardless of the mandatory requirements, there are widespread benefits of filing ITR. Recognizing the importance of ITR filing, it’s crucial for everyone to fulfill this financial responsibility, irrespective of category.
Benefits of Filing ITR (Income Tax Return)
Avoid Penalty
Avoiding penalties is one of the key “benefits of filing an ITR” for individuals and businesses alike. Filing your income tax returns (ITRs) on time is a smart move to sidestep hefty fines. Missing the deadline may lead to a late fee, potentially reaching INR 5,000. This fee is on top of any interest stipulated by the Act, and you might also find yourself liable for interest on the penalty amount.
Accidental Claim
You will benefit later on if you continue to file ITRs for yourself or your spouse in the event of an accident. In order to calculate the amount of a claim, insurance companies need evidence of income. Since the court takes ITR as the only proof, the claim amount may be lowered or even rejected if any returns are absent, particularly from the last three years. You will benefit later on if you continue to file ITRs for yourself or your spouse in the event of an accident. In order to calculate the amount of a claim, insurance companies need evidence of income. Since the court takes ITR as the only proof, the claim amount may be lowered or even rejected if any returns are absent, particularly from the last three years
Proof of Net Worth
The most reliable proof of your income or net worth is your ITR, hence it is one of the important benefits of filing ITR. Form 16, provided by their employer, is a source of income verification for the salaried class. However, self-employed individuals can use the ITR filing form as evidence of their income. It gives a detailed account of these individuals’ earnings and investments for every fiscal year. It can be used for a number of things, such as obtaining loans, buying insurance, buying homes and other priceless goods, etc. ITR is your only option if you need to provide proof of your income or net worth. It become one of the important benefits of filing ITR when you need proof of net worth.
Getting Refund
Getting refund is one of the key benefits of filing an ITR for individuals and businesses. You must file tax returns if your refund of TDS deducted previously is due; if not, you can lose your refund. Fixed deposits could be the primary investment choice for certain taxpayers. On these investments, tax is deducted at source (TDS), which is around 10%. You can reduce your tax liability on income from savings accounts, such as term deposits, if you file an ITR and take the benefits of filing ITR. Even if total income from all sources exceeds the basic exemption limit and you have made the investments in such a way that your net taxable income is less than the basic exemption limit in a year, you can take advantage of tax refunds and reclaim the TDS deducted.
Eligibility for a Loan Application
Consistent income is demonstrated by a regular ITR filing, and the taxpayer has been making timely tax payments. Financial organizations check the applicant’s prior-year ITRs in order to approve loans and other credit lines, such as overdrafts, bank credit cards, cash credits, and bill discounting alternatives. If you are unable to provide any documents, including your ITR, that the bank or lender feels are required, your loan application may be rejected. Hence it is important benefits of filing ITR from perspective of loan application.
Carry Forward Losses
To carry forward certain losses that may arise from the sale of capital assets, company losses, etc., taxpayers must file a tax return by the due date. For example, by timely completing your tax returns, you can set off the losses from prior years from any profits from the sale of stock or mutual funds. The simple fact is that if tax returns are not filed on time, unadjusted losses (with some exclusions) cannot be carried over to subsequent years and you can not take the benefits of filing ITR. Therefore, in order to make sure that the losses are carried forward and set off in the future, a tax return will be necessary.
Protection against black money
The government has restricted money transfers from India and tackled black money in recent years with a number of initiatives. In order to do this, the government mandated that taxpayers disclose any foreign assets they possessed on their annual income tax returns beginning in the 2011–12 fiscal year. In addition, the IT department will never consider your savings as “black money,” even if you don’t own any foreign assets and file your income tax return on time. This is because the department views any revenue that is not declared as “black money.”
For start-up funding
Financial institutions may need to see your returns over the last few years before funding your start-up. To make sure that the money they are investing is in the right place, these financial institutions and investors would want to review your company’s profitability, scalability, and other cost metrics from your business income tax return. Additionally, it confirms that the individual is a citizen of the nation and pays taxes.
Obtaining government tenders
Whether they are working on a work contract or a service contract, contractors may have a proven track record of winning big projects. However, they risk facing severe repercussions if they fail to file their taxes on time or at all. For their business, it might be harmful.
These returns have to be submitted by contractors on schedule, with great accuracy, and be subject to an audit (if needed). This is particularly crucial if you’re attempting to obtain a government contract. This work may be periodically inspected by the tender inspection committee, and it is common to review the ITR for the previous five to seven years.
Buying Insurance with High Coverage
Growth of the Nation
A country’s development can be greatly impacted by its tax return filing. More foreign exchange coming into the nation increases government revenue, which increases available funds for infrastructure development. For example, in the financial year 2022, the Indian government collected 9.60 lakh crore in direct taxes. This funding supported numerous national development initiatives as well as the construction of infrastructure.
Credit Card Application
Credit cards are a type of financial tool that practically everyone wants, regardless of their line of work. One of the main papers that must be provided if there are issues with other forms of income verification is an income tax return, hence its one of the important benefits of filing ITR. Through the Credit Information Bureau (India) Limited (CIBIL) score, an individual taxpayer’s credit history is also determined in large part by their ITR.
Visa Application
ITRs are one of the documents that most countries demand before granting a visa to an applicant. This provides information about your salary and financial status to those who are processing your visa application. The applicant’s income and ability to pay for the expenses will be examined by the embassy. The income tax returns for the last three years or the current year are required by many foreign consulates. If you are seeking a work permit, investment permit, or visiting visa, the lack of any sort of return may make it more difficult for you to obtain a visa. If you intend to travel to Southeast Asia, Europe, the United States, or the United Kingdom, you must do this to get benefits of filing ITR.
You can also read Form 12BB: Maximize Your Tax Returns Like a Pro!
Selling your product to the government
You must submit your ITR if you are manufacturing a good that the government can easily buy. The most effective example would be electricity generated by solar energy. These days, the government pays fixed prices to purchase extra electricity generated by solar farms. However, they require your last two to three years’ income tax returns before you are able to sell.
Effects of Failing to File an ITR
Now that you know the benefits of filing ITR, think about the possible consequences of failing to do so:
- A notice will be sent to the individual if income tax is due.
- If someone is unable to file income tax returns for a valid reason, the responsible authority will accept a detailed letter and any required supporting proof. They may ask for relief from condonation in this case.
- If an individual files their ITR after the deadline, the IT Department will penalize them. Generally, there is a ₹10,000 penalty if an individual’s income is above ₹5 lakhs. If your income is less than this, you will be fined ₹1,000.
- In severe cases, such as tax evasion, assessees may be subject to long imprisonment.
On the other hand, some individuals are not required to file an income tax return. As stated by the Finance Minister in the Union Budget for 2021, seniors who are 75 years of age or older are eligible for a complete exemption from submitting ITRs.
Conclusion
We have an obligation to file income taxes, in addition to the many advantages it offers. In order to avoid penalties and late fees, income tax returns must be filed. Your tax returns can assist you in obtaining bank loans, credit cards, and insurance claims that may arise. You should file your tax returns online via the income tax site if you want funding for your startup or government tenders.
Frequently Asked Questions (FAQ)
Registered users can utilize the e-Filing portal to pre-fill and file their ITR-1 forms. With this service, individual taxpayers can use the offline excel utility or the e-Filing portal to file their ITR-1 online. The procedure for submitting an online ITR-1 is covered in this user handbook.
If you are an individual with a salaried income, you will only be required to file your income tax return for FY 2022–23 (Assessment Year 2023–24) if your yearly income above ₹2,50,000.
An individual files an Income Tax Return (ITR) with the Income Tax Department of India in order to provide details about their income and any taxes they owe for that particular year.
Paying a penalty is one of the main repercussions of filing your ITR after the deadline. If, as per Section 234F, you do not submit your ITR by the deadline, you will be charged a late fee of Rs 5,000. However, the late costs will only be Rs 1,000 if your yearly revenue is less than Rs 5 lakh.
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