Although filing income tax returns (ITR) is time consuming, the rewards far exceed the inconvenience. According to income tax legislation, filing an ITR is compulsory for some and voluntary for others; nonetheless, regardless of whatever group one belongs to, filing one is required.
The ITR form is used by taxpayers to report their earnings and assets to the Indian Income Tax Department (Indian Revenue Authorities). It contains information about the taxpayers’ personal and financial information. ITRs are essentially a taxpayer’s self-declaration of their income, assets, and appropriate taxes paid. While it is generally completed electronically, senior persons have the option of filing it manually as well.
Because ITR forms are attachment-free, taxpayers are not obliged to include any papers with their return of income, such as evidence of investments, tax deducted at source (TDS) certificates, and so on. However, it is advisable to have these documents on hand and provide them to the tax authorities as necessary, particularly in situations such as assessment, investigation, and so on.
When the taxpayer’s ITR is e-verified using an OTP issued using his or her Aadhaar-registered cellphone number or through online banking, the process is complete.
Who needs to file an ITR?
Particular groups of taxpayers are required by law to file ITRs by certain deadlines. The following are the ITR filing requirements for Indian taxpayers:
- Individuals with a gross annual income exceeding the exemption limits:
- Every business and firm
- If a person is a resident and ordinary resident of India, and he or she:
- holds any asset (including any financial stake in any organisation) located outside India as a beneficial owner or otherwise, or
- has signature authority on any account outside of India, or
- is a beneficiary of any asset located outside of India (including any financial stake in any organisation).
- A person who has deposited an amount in one or more current bank accounts totaling more than INR 1 crore.
- A person who has spent more than INR 2 lakh on foreign travel for herself or others.
- An individual who has spent over INR 1 lakh on energy consumption.
The Benefits of ITR Filing on Time
Transferring unabsorbed losses to future years
Losses from the current fiscal year can be carried forward to the next fiscal year if ITRs are submitted on time.
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.
Why File an ITR Return?
Noncompliance with this legislation may subject Indian taxpayers to several fines.
Apart from the mandatory obligation, if a taxpayer’s income does not exceed the exemption limit indicated (up to which ITR filing is not required), it is advised for the taxpayer to file the ITR to reap the following benefits:
- Access to loans and credit without the hassle
Regular ITR filing implies regular income as well as timely payment of taxes. To approve loans and other credit lines like overdrafts, credit cards, cash credits, and bill discounting facilities, financial institutions look for prior year’s ITR files. It also plays an important role in determining a taxpayer’s credit history through the Credit Information Bureau Limited score.
- To facilitate visa processing
ITRs are valid proof of income that are frequently examined by numerous host countries when processing visas. Although not required, it makes acquiring visas easier.
- It serves as verification of income and address.
ITRs can also be used to prove residency and income. ITR filings are useful for self-employed individuals who do not have any income proof to submit, unlike employed individuals who receive paychecks and have tax withholding certificates.
- 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. Withholding of taxes is likely regardless of the exemptions. ITR filing can be used to claim a refund of taxes withheld from your paycheck.
- In order to acquire tax clearance certificates
Section 281 of the Act requires the presentation of a tax clearance certificate for high-value or overseas transactions, particularly the sale or transfer of assets. You must first file a standard ITR to acquire this tax clearance certificate.
- 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.
In essence, an ITR shows how much money you’ve made throughout the years 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 can aid in the peaceful transfer of these assets to their rightful heirs.