Benefits Of ITR Filing
Every Indian, who starts earning a certain amount of income, has to pay income taxes in our country. Figuring out how much tax you need to pay, how you can reduce your taxes, and how you can grow your wealth while investing in tax-saving instruments are big topics of their own.
Paying taxes is one thing but filing income tax returns is another chore of its own. There are several benefits of filing income tax returns.
The Income Tax Department received around 5.83 crore tax returns, mostly from salaried and individual category taxpayers, by the end of the financial year 2021-22.
That’s a lot of people filing their tax returns. In this article, we will talk about what income tax return filing means and how it can benefit you.
What Is Income Tax Return (ITR) Filing?
An income tax return or ITR is the form that taxpayers have to submit while filing income tax. The application will have your personal and tax-related information for the said financial year.
Information filed in an ITR should apply for a particular financial year between 1st April to 31st March of the following year.
According to income tax laws, it is mandatory for any individual or business that earns any income during a financial year must file a tax return every year.
The revenue could be in the form of a salary, business profits, income from house property, or earned through dividends, capital gains, interests, or other sources. Tax returns have to be filed by taxpayers before a particular data. If a taxpayer fails to abide by the deadline, they have to pay a penalty.
What Is The Difference Between Income & Income Tax Returns?
Income tax is the amount an individual has to pay for the income they earn for the said financial year. The tax liability is calculated based on the income, the tax slab the person falls under, and other factors such as rebates, savings, investments, etc.
On the other hand, the income tax return is the annual record of your income, tax liability, tax paid, and investments for the said financial year. This record is collated and submitted to respective authorities in the needed format that is known as an income tax return file.
What Are The Benefits Of Filing Income Tax Returns?
You might be wondering whether there are any actual benefits to filing income tax returns every year. Well, you might be surprised to know that many merits come with filing income tax returns every year. We have talked about a few here.
- Claiming A Refund
There can be times when tax has been deducted (TDS) from your income even when your taxable income is less than the basic exemption limit and you do not have a tax liability for that particular year.
Even in the cases of salaried taxpayers where excess taxes are withheld, filing of returns would be mandatory to claim the refund of excess taxes. This is highly beneficial to salary and self-employed people falling in a high-income bracket.
- Applying For Loans
If you intend to apply for any loan, the lending bank or institution asks for an income tax return and ITR submission gives confidence to the lender to sanction your loan. They consider these ITR receipts to be a supporting document to a borrower’s income statement.
Hence, it is important to file for ITR if you are planning on taking a car or a home loan. Both salaried and self-employed individuals can benefit from this since they do not have to give any other document as income proof and easily get loan approvals.
- Visa Processing
If you are planning to travel overseas, foreign consulates will ask you to provide your ITR receipt for the past few years during the time of the interview. This is especially true if you are planning to travel to the US, UK, Canada, or Europe.
As ITR receipts act as proof of the visa applicant’s income, the embassy will check the income details and make sure they are capable of taking care of their travel expenses.
So, if you are planning to move abroad in near future, it is a good idea to file your ITR even when your annual income is below ₹2.50 lakhs (i.e.) the exemption limit.
- Carry Forward Your Losses
If you file the return within the original due date, you will be able to carry forward losses to subsequent years and this can be used to set off against the income of subsequent years.
This means you can deduct certain losses from the relevant income, reducing your tax liability of future income.
Here are a few examples of how losses can be carried forward.
- Losses from house property can be carried forward till the next eight assessment years and can be set off from income from house property.
- Losses from the business can be carried forward and paid with the future income from the business.
If you do not file your tax returns, you will not be able to carry forward your losses and lower your tax liability.
- Avoid Penalty & Punishment
If you are eligible to pay your taxes, you must compulsorily pay them. Failing to pay your taxes can lead to serious consequences, like paying a penalty of up to ₹5,000, as well as, other punishments. So, you must pay your taxes and file your returns at the right time.
- High Life Cover
If you are looking to buy a high insurance cover of ₹50 lakhs or ₹1 crore, you need to show your ITR documents to verify your annual income. The sum insured one can get with a term cover depends on several factors and one such factor is the income of the insured. If an insured doesn’t have a high salary, they wouldn’t need a higher insurance cover.
- Proof Of Your Earnings
Usually, employers provide Form 16 to their employees. This document serves as a verification of income. In the case of self-employed or freelancers, the ITR filing form acts as a genuine income verification. During the fiscal year, it consists of a detailed breakdown of an individual’s income and spending.
- Processing Of Documents
The income-tax return is a crucial document for processing applications for several purposes. Apart from acquiring a loan, income tax returns help in the application procedure for credit cards, and insurance policies. A NIL ITR is a legal document that contains all the relevant information about your financial situation. It is considered to be a reliable source of income and is accepted by all financial institutions.
- Presumptive Taxation Scheme
Self-employed people can avail of this taxation scheme by filing ITR with form number 4. Professionals such as architects, doctors, and lawyers can consider only 50% of their income as profit and be taxed accordingly if such income is below ₹50 lakhs. Businesses with annual turnover below ₹2 crores can also use this scheme and declare 6% (for digital transactions) and 8% (for non-digital transactions) of their income as profit.
- Government Tender
If a person is planning to start their business and needs to fill a government tender(s) for the same, they will need to show their tax return receipts of the previous five years, say experts. This is to show the financial status and whether they can support the payment obligation. However, this is not mandatory and it may vary depending on the internal rules of the government department.
In The End…
Filing income tax returns is extremely important, even if you don’t make an income above the basic exemption limit. From applying for loans to acting as an address proof, your income tax returns form can help you with several processes.
We hope this article helped you understand what income tax returns are and how filing ITR can help you to a great extent.
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