Reasons for Income Tax Returns (ITR) Filing

  •  6 min read
  • 0
  • 28 Dec 2023
Reasons for Income Tax Returns (ITR) Filing

Key Highlights

  • Mandatory Compliance of Legal obligation by tax authorities.
  • Financial Documentation record of income, expenditures, and investments.
  • Loan Approval required for demonstrating financial credibility.
  • Timely filing prevents penalties and legal consequences.

The Income Tax Return (ITR) is a comprehensive statement outlining your earnings from diverse sources and the corresponding tax liabilities. It encompasses intricate details of taxes paid and potential refunds owed by the government. The crucial deadline for filing ITR is set at four months from the conclusion of a financial year. This timeframe provides taxpayers with ample opportunity to summarize the entirety of the year's data meticulously. Subsequently, they can submit these meticulously compiled details to the government, ensuring accuracy and timeliness in the filing process.

Filing your Income Tax Returns (ITR) brings forth various benefits, each playing a crucial role in financial well-being and compliance. Explore the various advantages of filing your Income Tax Returns (ITR):

  • Qualifying for Loans Your ITR statement is a concrete authentication of your income, acting as a pivotal document when applying for loans. Whether you're a freelancer, intern, or just starting your career with an income below the minimum tax slab, filing your ITR is imperative. Lending institutions often require ITR details for the past three years to gauge your creditworthiness and ability to repay loans.

  • Claiming Tax Refunds In instances where you may have paid excess tax, such as through tax deducted at source (TDS) or miscalculations in tax assessments, ITR filing becomes mandatory. This process is essential to claim a refund for the surplus taxes paid. Transactions involving tax deductions at the source, like TDS, necessitate reconciliation with the Income Tax Department through ITR filing.

  • Carrying Forward Capital Losses: Financial years may witness losses, either speculative/non-speculative or in the form of capital losses. ITR filing allows individuals or firms to carry these losses for up to eight consecutive years. This strategic move enables offsetting losses against future gains or income, contributing to long-term financial planning.

  • Procuring Funds for Start-ups: Entrepreneurs aiming to establish or expand businesses often require external capital from seed investors or venture capitalists. ITR becomes a crucial document in this scenario, providing these stakeholders with evidence of the business's financial soundness and potential profitability.

  • Benefits for Freelancers and Independent Professionals: Freelancers and self-employed professionals, often devoid of Form 16, rely significantly on their ITR document and it has become the primary proof of income tax filing reasons. This document addresses funding concerns and plays a pivotal role in facilitating various transactions.

  • Proof of Address: Your ITR statement, sent to your registered address, is an official proof of address. This aspect adds an additional layer of credibility to your financial documentation.

  • Tax Saving Through Planning and Investments: Contrary to misconceptions, ITR filing provides an opportunity for strategic tax planning and savings. Sections 80C and 80D of the Income Tax Act offer avenues for tax savings through investments in various instruments. This underscores the importance of aligning financial goals with tax-saving strategies.

Here are five reasons why it's important not to forget to file your income tax returns:

1. Simplifies getting a loan: When you apply for a loan, such as a home loan, lenders usually ask for proof of your income. This process often involves submitting your income tax returns from the last two or three financial years.

2. Helps retain losses: If you've experienced losses in areas like investments or business and want to carry those losses forward to the next financial year, filing your income tax return is necessary.

3. Enables claiming TDS refunds: If tax is deducted from your salary or if you have an agreement that involves TDS, you can claim a deduction by filing your income tax return within the deadline. The income tax department calculates your net tax liability and allows you to claim a refund if you are not required to pay tax.

4. Contributes to nation-building: The taxes you pay contribute to the government's funds, playing a vital role in the country's development. In FY19, the government collected ₹9.45 Lakh crore in direct taxes, which can be utilized for infrastructure development and other developmental activities.

5. Supports visa or credit card applications: When applying for an international visa or a credit card, you may be asked for income proof. In many cases, you need to submit your income tax returns for the last three years. This helps the other party assess your eligibility for a visa or credit card, especially when planning to visit countries like the USA, Canada, or Europe, where ITRs are required during the verification process.

Filing Income Tax Returns (ITR) online has become more convenient and accessible. Here are some tips to help you navigate the process smoothly:

  • Gather Necessary Documents Ensure you have all relevant documents, including your PAN card, Aadhaar card, Form 16, income details, deductions, and investments.

  • Choose the Right Form Select the appropriate ITR form based on your income sources. Different forms cater to various types of income, so choose the one that aligns with your financial situation.

  • Register on the Income Tax e-Filing Portal Create an account on the official Income Tax e-filing portal. If you already have an account, ensure your details are up-to-date.

  • Link Aadhaar with PAN Ensure your Aadhaar is linked with your PAN, as it is mandatory for e-filing. This can be done on the official portal.

  • Verify Form Details Double-check all the details you enter in the form. Ensure accuracy in providing personal information, income details, and deductions claimed.

  • Use Digital Signatures or E-Verification You can digitally sign your ITR using a digital signature certificate (DSC) or e-verification through Aadhaar OTP.

  • Seek Professional Help if Needed If your financial situation is complex or you are unsure about certain aspects, consider seeking assistance from a tax professional or consultant.

  • Stay Informed About Changes Keep yourself updated on any changes in tax laws or filing procedures. The Income Tax Department may introduce updates, and staying informed ensures compliance.

By following these tips, you can streamline the online ITR filing process and ensure accuracy in your financial submissions to the Income Tax Department.

Conclusion

The act of filing your income tax return not only serves your individual benefit but also contributes positively to the nation. The government utilises the tax dollars you submit to enhance infrastructure, healthcare, defense, and other services. Furthermore, a higher registration rate enables the government to allocate more funds, resulting in overall improvements that benefit the entire country.

FAQs on ITR Filing Reasons

Filing an income tax return is mandatory to comply with tax laws. It ensures proper documentation of financial transactions, aids in claiming refunds, and establishes eligibility for loans and Visas.

ITR filing enhances financial credibility, qualifies for loans, facilitates tax refunds, and is crucial for various transactions.

The deadline for filing an income tax return is typically four months from the end of the financial year.

Income tax is a direct tax. It is charged directly on individuals and commodities based on their income, profits, or gains, as opposed to indirect taxes imposed on goods and services.

To claim a tax refund, ensure accurate ITR filing, especially if you've paid excess tax or faced errors in tax assessments.

Enjoy Zero brokerage on ALL Intraday Trades
+91 -

personImage