We are all aware of what income tax is. It is the tax levied by the central government on income earned by individuals and businesses during a financial year. Now, why is it essential to file income tax returns? And how many of us are aware of the process of filing these returns? What are the benefits we get from doing so? These questions might cross your mind when you hear or read about this topic.
Taxes, as we all know, are the government’s primary source of revenue. They are required in any economy to maintain deficits and optimal cash flow. As a result, near the conclusion of each financial year in India, taxpayers supply personal information in the form of an Income Tax Return, which includes their tax-filing status and dependent data (ITR). Though this looks to be a simple operation, it necessitates extensive planning in order to file before the deadline. So, what should a taxpayer remember in order to finish the ITR filing process?
The taxpayer must be aware that the ITR allows them to plan their tax payments, calculate their tax burden, and request a refund for any taxes they have overpaid. Furthermore, when submitting the ITR, the taxpayer must have quick access to papers such as the Aadhaar card, bank details, Form 16, Form 16A/16B/16C, Form 26AS, investment proofs, house loan statement, and capital gains statement.
What are the benefits of filing income tax returns?
Aside from being a regulatory requirement, filing your ITR on time allows you to access financial goods and services readily. So, whether you’re looking for a personal loan or a credit card, having ITR data will make the procedure smooth. Also, keep in mind that losses from the prior year cannot be claimed as an exemption later. As a result, maintaining a record of it permits you to lower your tax liabilities in consequent years. Let’s discuss in detail some of the benefits of ITR.
- Stress-free Loan Approval – Individuals will benefit from filing the ITR when applying for a vehicle loan (2-wheeler or 4-wheeler), a home loan, etc. As proof of income statement, all significant banks might request a copy of tax returns. This is a document that must be submitted in order for the loan to be approved.
- Claim Tax Refund – If your total taxable income is less than the basic exemption limit and you have no tax liability for the year, tax may have been deducted (TDS) from your earnings. You will have to seek a TDS refund in this scenario, and you will be required to file an Income Tax Return.
- Income and Address Proof – Your income and address can be verified using your tax return.
- Carry forward losses – If you file your return by the initial deadline, you’ll be able to carry over losses to future years, which can be used to offset income in coming years. This implies you’ll be able to deduct certain losses from the relevant income, lowering your tax payment in the future. This isn’t feasible without submitting a tax return.
- Easy Visa Processing – The receipt of an ITR is required in order to process visa applications. The US embassy and others request this receipt to learn more about an individual’s tax compliance. Because this document acts as verification of an applicant’s income, the embassy will review the information to ensure that the applicant is financially capable of covering trip expenses. Self-employed individuals and salaried employees can take advantage of this by completing an ITR.
- Medical Insurance – Health insurance premiums paid in a given fiscal year are eligible for a deduction of up to $50,000 from the IT Department. This is in compliance with Section 80D of the Internal Revenue Code. Senior citizens who have medical insurance are eligible for this discount and can receive treatment right away.
- Avoid Penalties – As previously stated, some people are required to file income tax returns. Individuals and businesses can avoid significant fines by completing them on time. The IT Department imposes a punishment of Rs. 1000 if the annual income does not exceed Rs. 5 lakhs. Otherwise, the fine may be as high as Rs.10,000.
What are the Eligibility Criteria for filing Income Tax?
According to the Income Tax Act, income tax is only required to be paid by individuals or corporations who fall into particular income bands. The entities or enterprises listed below are required to file ITRs in India regularly:
- Individuals under the age of 59 who earn more than Rs 2.5 lakh in a year. The maximum increases to Rs. 3 lakhs for senior persons (aged 60-79) and Rs. 5 lakhs for super-elderly people (aged 80 and above). It’s worth noting that the income amount should be determined before considering the deductions available under Sections 80C to 80U, as well as the additional exemptions available under Section 10.
- All businesses, whether or not they have generated a profit throughout the year.
- Those who want a refund for any extra taxes deducted or income taxes paid.
- A person’s withholdings or financial interests in companies based outside of India.
- Treaty-advantaged foreign businesses that conduct business in India.
- NRIs who earn or accrue more than Rs. 2.5 lakh in India in one financial year
In addition to the above-mentioned points, if a person dies in the middle of a fiscal year, an ITR should be filed for them as well. It is based on their earnings up until the time of their death. In this instance, the IT returns should be filed by their legal heir. This is significant because insurance companies want proof of income to sanction an amount for an accident in court. As a result, the claim amount can be simply obtained by producing the ITR receipts.
Now that you’re aware of the benefits of completing an income tax return, consider the following drawbacks if they fail to do so:
- If a person falls into the taxable bracket, he or she will receive an income tax notification.
- The authorization body will accept a thorough letter and supporting papers if a person is unable to file IT returns for a legitimate cause. In this instance, he may be eligible for a pardon.
- If an individual fail to file an ITR on time, the IT Department will impose a penalty. If one’s income exceeds Rs. 5 lakhs, a penalty of up to Rs. 10,000 is imposed. If your income is less than this, you will be fined Rs. 1,000.
The amount of information regarding filing income tax returns do not end here. It is as vast as the ocean. Finprov tries to provide all the most required information such as new income tax rules and sections for us citizens. Follow Finprov for more updates and material to learn further about this topic.