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Introduction
An income tax return(ITR) document is used to declare an individual’s income specifics, the tax due, exemptions, and deductions for a specific financial year.
Filing income tax returns is merely not a legal requirement; but also provides benefits that extend beyond compliance. In fact, it plays a vital role in your financial well-being and credibility, while also contributing to the development of the nation. Submitting income tax filing is essential for declaring your income to the Indian government, which further demonstrates your responsibility as a citizen. It is a mandatory process, as it serves as the primary source of direct tax revenue in India.
Regardless of your source of income, filing income tax returns timely reflects financial transparency and discipline. Furthermore, it provides several benefits that can create a significant impact all through your financial journey.
Lets understand why filing income tax returns is essential even if your income is below the taxable limit.
1. Annual Income Proof
An Income tax return document is a concrete documentation of your annual earnings. Timely filing ITR returns makes it simpler to get financial credibility, fulfill legal requirements, visa applications, government tenders, or when buying higher valued possessions. Most financial organizations consider ITR as valid and reliable proof of income, as it is verified by the Income Tax Department.
Even if your income is below taxable earnings, filing ITR will help you in creating official data of your earnings, which would be helpful at the later stages of your financial journey.
2. Visa Processing Process
If you are planning to move abroad for education or work or business purposes, most embassies or consultants require a copy of ITR receipts of the past couple of years. It is often considered as an essential financial document to assess financial background and your capability to support yourself abroad. Additionally, it demonstrates your civic responsibility as a citizen, so making timely filing of ITR is advisable.
3. Carry Forward of Losses
Have you ever incurred a loss in business or while investing on a property, or from the stock market? In such cases, filing your Income Tax Return(ITR) on time is the only way to carry forward all those losses to subsequent years and reduce your taxability.
If you skip filing your ITR, you risk losing this valuable benefit, which would further save you from paying a significant amount of tax in the future.
4. Required to Obtain Government Tenders and Contracts
Are you an entrepreneur or a contractor looking forward to participating in government tenders and contracts? Then, it’s important to file ITR timely, accurately and to get audited if necessary. Many government organizations require ITR copies of the last few years as proof of your financial stability.
Failing to file your ITR could prevent your business from leveraging such opportunities, which further limits your growth opportunities.
5. Seamless Tax Audit Process
When you call an auditor to audit your income tax, your ITR documents are the first set of documents to verify. Completion of ITR with accuracy is essential in simplifying the income tax audit process.
Any discrepancies can complicate the auditing process, lead to penalties, and ultimately end up in a detailed scrutiny. Therefore, it is crucial to file ITR accurately and on time to alleviate the need of extensive auditing.
6. Tax Refund Claiming
Claiming a tax refund is one of the major benefits of filing ITR. Often, your employer may deduct more TDS (Tax deducted at source) than actual one. In such a scenario, on time filing of ITR will help you in claiming back the excess tax paid.
7. A Legal Obligation
Filing Income Tax Return is mandatory under Income Tax Return Act, 1961. It distinguishes it from other taxation systems, such as GST. Individuals whose income exceeds 4 lakhs are supposed to file an ITR. Failing to file an ITR leads to paying penalties, interest charges, delay in refund, and legal prosecution in extremity.
In addition to financial penalties, you will face issues while applying for loan, preventing carry forward of business losses, and visa approval.
Financial penalties-
- Under section 234 F, the income tax department can impose a fine of Rs 5,000 if an individual’s income exceeds 5 lakhs. And, a fine amount of Rs 1000 if the total income is less than 5 lakhs.
- Under section 234 A, a penalty interest of 1% per month is charged on the unpaid tax amount until you file ITR.
- Under section 270A, a penalty of 50% of tax payable for underreporting income.
So, timely ITR filing safeguards you from unnecessary legal troubles.
8. Buying a Term Insurance
When you plan to buy term insurance, the service providers require their applicants to submit ITR documents to assess their annual income, while it’s for higher coverage amounts.
Term insurance service providers use ITR reports for various reasons-
- To determine your eligibility
- To set coverage amount insured
- For legal compliance
- To assess the risk involved
9. Supports for Startup Ventures
While you are planning to launch a new organization or develop an existing one, you will need funds from investors and venture capitalists. However, you will be enquired about ITR filing by these investors and capitalists to evaluate your business profitability and stability.
10. Ensures Financial Discipline
Beyond compliance, filing ITR on time help you in developing financial discipline. It empowers you to:
- Review your annual business growth.
- Stay organized with investments and tax planning
- Maintain proper documentation
When you file ITR accurately and on time, you will have peace of mind knowing your finances are legally approved.
Conclusion
Filing income tax returns(ITR) is a crucial step towards attaining financial credibility, empowerment, and a sense of being a responsible citizen. Whether you earn modest or a huge income, ITR filing ensures long term financial stability and enhances your financial profile.
By fulfilling all the tax obligations and maintaining accurate financial records, you contribute to the development of the nation , while equipping yourself with proof of income, capability to handle various financial transactions seamlessly, eligibility for loan, visa approval, among others.
Don’t wait for the last date to file income tax returns. Take charge of your financial future today and file income tax returns on time.
