Putting off income tax payments can have difficult implications for you. Besides, filing your income tax returns (ITR) on time every year can have some benefits
ITR is a form that you use to file information about your income and income tax liability. The form is submitted to the Income Tax Department.
Indians are expected to file their ITR every year. Herein, they have to state the income they have earned during the year, whether as an individual or a business entity. The income could take the form of salary, dividends, interest, and capital gains, among other things.
If an individual fails to file their returns within the stipulated time, a penalty may be imposed. In some cases, it may attract scrutiny from the Income Tax Department.
If excess tax has been paid during a given year, the assesse may be eligible for a tax refund. This would be subject to the Income Tax Department’s interpretations and calculations. To make tax compliance easier, taxpayers have been categorised into many groups based on income earned and its source.
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Timely ITR filing brings certain key benefits. Here are a few of them:
If you are applying for a loan, you may need to submit proofs of filing your ITR for the last three years. This would help the bank to assess your financial situation and capability to repay the loan. Submitting these documents could also reduce the time taken to process your loan. This holds for the processing of credit cards as well.
Planning to travel abroad? You will have to get a visa first. For this too, you would be required to submit ITR proofs. This is to ensure that you are financially stable. Should you wish to travel abroad, especially to the USA, Europe, or Canada, you would need to submit your tax returns for the past few years when applying for a visa.
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The losses incurred by an individual or a firm in a financial year can be carried forward to the next year if required. Such losses may be filed under ‘profits and gains of business and profession’ or ‘income from capital gains’. But this benefit is available only if you have filed your ITR before the due date. If you file later than that, there may be a chance of losses not being carried forward.
Filing your ITR on time helps you avoid the penalties. There is also the benefit of being able to revise your ITR if required.
Say, you wish to claim insurance in case of an accident. Insurance companies typically require your ITR proofs to start legal proceedings. Should you fail to furnish the ITR details, your claim amount could be reduced. Depending on the case, your claim may even be rejected.
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Planning to start a business or to expand an existing one? You may need capital from external sources like seed investors or venture capitalists. Such investors may ask for your ITR details to assess the financial soundness and profitability of the business. Your ITR forms would also help them to cross-check the figures presented in the audited report.
People who work as freelancers or are self-employed do not receive Form 16. Often, the only document that proves they have filed income tax is their ITR. Without this proof in place, they could face funding issues and transactional problems.
Your ITR can help you get a high life insurance cover. Insurance companies may not extend this benefit to you if they feel you are a tax evader.
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Filing an ITR does not mean that you will need to pay huge amounts of tax. In fact, you can make it work in your favour by making wiser investments. The following investment options can help you to reduce your tax outgo.
Equity-linked savings schemes (ELSSs) are tax-saving mutual funds. These plans bring you equity exposure and an opportunity to earn higher returns. The funds come with a lock-in period of three years. You can invest in these through a lump sum investment or via a systematic investment plan (SIP). In either case, you would be eligible for a tax deduction of up to Rs 1.5 lakh under Section 80C. The dividends and the amount received on maturity are also tax-free.
Under Section 80C, premiums paid on life insurance policies bring tax benefits of up to Rs 1.5 lakh. This holds true for term insurance, unit-linked insurance plans (ULIPs), and other types of life insurance. Besides, any income you receive from the policy (including bonuses and surrender value) are tax-exempt under Section 10 (10D).
Premiums paid for health insurance plans are also eligible for tax deduction under Section 80D. You get a Rs 25,000 deduction for yourself, your spouse, and your kids. An additional Rs 25,000 deduction applies if you get health insurance for your parents. This goes up to Rs 50,000 if your parents are senior citizens.
Public Provident Fund (PPF) has a lock-in period of 15 years. The maximum amount one can contribute to PPF in a year is Rs 1.5 lakh. This entire sum can be claimed as a tax deduction under Section 80C. The amount you receive on maturity and any interest earned are also tax-free.
Investment in the National Pension Scheme (NPS) brings a tax benefit on Rs 50,000 of investment per year. This is in addition to the Section 80C deduction and you can claim it under Section 80CCD (1B).
As you can see, there is good reason for you not to fear the ITR filing exercise every year. Pay your taxes and file your returns on time. The benefits make all the difference.
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