When your income reaches a specific threshold, you must pay tax. You must file an Income Tax Return to pay your taxes.
ITR is a form on which you submit information about the income you made in the previous fiscal year (1st April-31st march). Filing an ITR is necessary for everyone, including paid individuals, partnerships, and HUFs.
The majority of people consider filing income tax returns to be a time-consuming process. That is why many people choose to forego filing returns.
As a responsible citizen, you must ensure that your taxes are filed each year. Every working Indian has a moral obligation to do so.
Income Tax Return filing can be beneficial to you as well. Here are some of the many ways that completing an income tax return might help you.
- It has the status of a legal document.
The legal significance of an income tax return is enormous. It has been registered with the government. It serves as legal evidence in two ways.
- Identity Verification
The return you fill out can be used as proof of identity in a variety of situations, including when applying for an AADHAR card or any other document. It is also accepted by the government as proof of address.
- Proof of Income
The ITR form, as previously stated, contains a thorough breakdown of all your income and expenses. The tax you must file is calculated on this basis.
As a result, the ITR can also be used as proof of income, as some transactions, such as the purchase of a home, need proof of income.
- Can assist you in claiming deductions
The government offers some deductions to you in order to ease the load on taxpayers and encourage more individuals to pay their taxes.
- These deductions and exemptions can be used in some investments, lowering the amount of tax you pay in the end.
- TDS and refunds are also refundable.
However, you must file an income tax return to be eligible for these tax benefits. You cannot claim deductions if you have not submitted an ITR.
- Important Document for Loan Applications
When you apply for a loan to buy something, such as a car or a new home for your family or a business, the bank will ask you to produce certain documents, such as tax returns.
- Aadhar card
- PAn card
- Driver’s License
- Photo Id
One key document requested is evidence of income. ITRs for the previous three years were commonly requested by banks. This is done to determine if you will be able to repay the loan based on your history and current financial condition.
ITR is useful not only when applying for bank loans, but also when applying for credit cards. Before providing you a credit card, credit card issuers will often request your previous salary and tax records.
- It’s useful if you’re planning a trip abroad.
There are several formalities to take before traveling abroad. If you do not file your ITR, it may prevent you from traveling abroad. The ITR form is one of the paperwork that the countries you want to visit require.
This is due to the following factors:
- Having a history of filing income tax returns helps your case and improves your chances of getting visa approval.
- It provides the embassy with information about your financial condition.
- Avoid Sanctions and Penalties
The Income Tax Act of 1961 governs the taxes that apply to you. As a result, if you earn more than the exempt amount, you must pay taxes.
If you are qualified to pay taxes on your earnings but fail to file your tax returns, you will face penalties.
A penalty of up to Rs 5000 might be imposed by an income tax officer. If you do not file your returns, you may face further serious consequences.
To avoid such penalties and punishments, you should file an ITR.
- Losses can be carried forward indefinitely
The Income-tax Act of 1961, Sections 70 and 71, offer provisions for carrying over losses from one year to the next. This implies you can postpone your loss until the following assessment year.
Consider the following examples:
- Losses from house property can be carried forward for up to 8 assessment years and deducted from house property income.
- Losses from the firm can be carried forward and compensated out of future profits.
You cannot carry forward or pay off losses if you do not file an income tax return.
Filing an income tax return benefits not only you but the entire country. The government uses the money you pay in taxes to create infrastructure and improve other national services like health care and defense.
The more individuals that register, the more money the government will have to spend to provide us with a nice country.