Filing an income tax return, or ITR, may not be the most thrilling activity, but it’s a significant part of financial responsibility and compliance in India. For salaried employees, self-employed professionals, or business owners, timely and accurate filing of your income tax returns offers advantages beyond mere legal compliance.
In this blog, we are going to be dealing with ten points that argue why it is extremely important to file the income tax return and the various ways it is useful.
Legal and Regulation of the Law
Filing your income tax return is basically a mandatory requirement in India along with income more than the limit as per the country. If any allegedly, the taxpayers have to file up the form SFT- (Specified Financial Transactions). Both the Income Tax Act, 1961, and Limited Liability Prosecutions Act would include the ransomware.
Filing your ITR before the due date is a guarantee that you will solve your tax problems in the legal way and prevent the imposition of any legal charges on you. Non-compliance with the tax rules may lead to the sharing of the tax your earnings with the government, late submission interest rates, and the tax department bothering you due to negligence in the tax laws. Make sure that you also file your ITR in no time without breaking the regulation.
Timely Refund of Excess Tax Paid
It means most people end up paying much more tax than they really have to. In addition, tax is usually deducted at source, for instance, from one’s employment. An individual who files their income tax return gets a refund for any excess that may have been deducted.
If you do not file your ITR, you will not be able to get a refund on the excess tax paid, and you will lose money that is yours. Filing ensures that you get back the tax overpaid in the year. Moreover, if you think you have overpaid taxes, file your return immediately to get the refund back into your account.
Helps Build a Record for Financial Transactions
Regular filing of income tax returns will help build a solid financial record for you. Your tax returns reflect your sources of income, your expenditures, and other details about your financial life, which are helpful in several personal and business activities.
Importance for Loan Issuance
A good record of taxes will be essential in the issuance of loans. These loans may include home loans, car loans, and personal loans, among others. In determining the repayment of such debts, financial institutions look for records of income that have been taxed on your part. Further, keep a consecutive record of tax filings which can increase creditworthiness as perceived by lending institutions.
Documentation of Income Source for Loans
When applying for loans, lenders generally require proof of income to evaluate your ability to repay. The most credible proof of income is your income tax return. It provides a detailed, government-backed document showing your financial health.
You may face problems securing loans or credit if a tax return is not filed. Be it for a home loan, business loan, or personal loan, your income tax return is the most important proof that the lenders use before lending to you. Furthermore, for availing of easy loan acceptance, prepare your tax return annually and update it.
Removes Penalty and Legal Challenges
Failure to file an income tax return or filing it after the due date can attract penalties under Section 234F of the Income Tax Act. The late filing charges can be a maximum of ₹10,000 and a minimum of ₹1,000, depending on the time of submission after the due date. Besides this, the taxpayer may face legal issues like criminal prosecution and the imposition of heavy fines.
Submit the return on time to avoid these penalties which escalate with time. It is also observed that penalty-free tax records are a feather in the taxpayer’s cap. Also, file your return every time, well before the due date.
Claim Deductions and Save Tax
It is true that the Indian tax system allows people to enjoy certain tax benefits out of the deduction of their income. The deductions help in reducing the taxable income and consequently the tax one is supposed to pay.
Common Deductions
Some of the common deductions are the expenses made to PPF, EPF, ELSS, insurance premium, among others.
When your income tax return is filed, you can claim all the respective deductions, and consequently, the tax due will be less. Failure to submit does mean losing the tax-saving advantages. Further, take benefits from all available deductions and exemptions to minimize the tax.
Maintain a Record to Follow in the Future
Your ITR proves to be a record of your earnings as well as taxes paid over years. This is not only helpful during the current tax but even for future financial planning and referring to it.
Historical Financial Record
A well-maintained record of your income tax returns shall be a historic financial record available for you at any time, so you can easily refer back to it during retirement planning or investment decisions, or even during any audit. Maintain copies of all your filed tax returns in a safe place because someday they will come in handy during various personal and professional purposes.
Improves Your Credit Score
A good credit score is crucial for securing favorable terms on loans and credit cards. Filing your income tax return helps establish a consistent financial history, which lenders and financial institutions use to determine your creditworthiness.
Regularly filing ITR and paying taxes on time can positively affect your credit score, making it easier to secure loans with lower interest rates. Be diligent about filing your returns each year, as it contributes positively to your financial credibility and credit score.
Eligibility for Carrying Forward Losses
It’s allowed in Indian income tax law for a taxpayer to carry over losses from business income, capital gains, or house property loss.
Benefits of Carrying Forward
This means you will be able to offset this loss against the future taxable income and reduce your tax liability during the coming years. If you fail to file your ITR, the opportunity to carry forward this loss will be lost, where you would have been able to offset the taxable income over subsequent years. Filing ensures that you can maximize your tax savings over multiple years.
Smooth Tax Audit Process
If you call for an audit of income tax, your income tax returns will be the first documents to be verified. Correctness and completion of returns are vital in simplifying the audit process.
Importance of Accuracy
In case of any incorrectness while filing returns, or if a return is not filed completely, it is supposed to complicate the audit and bring about penalties or more detailed scrutiny. Providing the accurate income tax return alleviates the audit if needed and will grant you the upper hand on troubles that can arise eventually.
Conclusion
Filing for an income tax return is not just mandatory as a token of financial discipline and honesty. By filing ITR, you can avoid legal troubles, keep claiming those refunds, straighten your credit by removing the debts that can hinder you, and save tax.
Filing on time keeps you in compliance with the law and opens doors for various opportunities, such as loans and refunds, while keeping you from being penalized for non-compliance. It also sets the basis for efficient financial planning and builds a solid record for future transactions.
Do not wait for the last moment to file your returns. Make it a habit to file your taxes well before the deadline. It will not only safeguard you from penalties but will also give you greater control over your finances and future tax obligations.
“Read our blog post – A Step-by-Step Guide to Filing Your Income Tax Return – and simplify the process with expert guidance.”
