There is a general perception among many first-time tax payers that filing Income Tax Return (ITR) is optional as they think it is voluntary in nature. So they don’t realise the importance of ITR filing and treat it as an unnecessary task. Filing ITR isn’t just an essential financial activity but also a moral and civic duty of every tax payer, as it helps the government receive the taxes it needs to function. It also allows the government to refund the excess taxes paid by you.
Being tax-compliant comes with its own set of benefits and so it should not be avoided.
Here are six reasons why should you file ITR on time every year.
Mandatory Nature of ITR Filing
ITR filing is mandatory for earning individuals whose yearly income in the previous financial year is above Rs. 2.5 lakhs. If you don’t file, you may invite the taxman’s scrutiny for your failure in declaring your income and paying your full taxes. On the other hand, for those who earn less than Rs. 2.5 lakh, it is not mandatory to file ITR. However, it is advisable to voluntarily file ITR. It may prove useful in many ways in the future.
Lenders Seek ITR
While buying assets like a home or a vehicle, you may require a loan from your bank or any financial institution. Here, your ITR filing helps. For instance, if you go for a Home Loan in future, your lender or financial institute will likely seek your ITR returns for up to the last three financial years. The ITR statement may also be required for vehicle loans, Credit Cards, and Personal Loans. Therefore, possessing your recent ITR statements makes borrowing easier as it clearly reveals to your lender what your income over the last few years has been.
Claim Adjustment Against Past Losses Requires ITR
It is not possible to get exemptions on various kinds of losses incurred by an individual or a business in a financial year if not recorded in the ITR filing. These losses could be short or long-term capital losses or for that matter speculative or non-speculative losses. In future, if you want to claim adjustment against losses in the past, it’s strongly advised that you should file ITR regularly. You never know when you may want to claim an adjustment against your previous years’ losses.
For Visa Processing
Income tax returns of past few years are referred to by many several countries when you apply for their visa. Travelling to countries like US, UK, Canada and Europe, you may be asked to prove your income, and one of the documents that helps you do it is your ITR statement.
While Buying Term Insurance
It’s common these days to buy high-value life covers worth several crore rupees. Before you can buy one, insurance companies need to ascertain your income. This is because the size of the life cover you avail is proportional to your income. The higher your income, the higher can be your cover. To prove your income, you may need to share ITR statements with the insurance company during the application stage.
Shows Your Responsibility
Being a citizen of this country, using its infrastructure and other services and facilities provided by the Government, it is your duty to inform the Income Tax Department about your income and taxes paid on it. By filing returns, you register your financial record while fulfilling your social and moral duty as a responsible citizen.
Why Should You Be On Time And Not Miss The Deadline
The deadline for filing tax return is July 31. However, from this year penalties have been introduced under Section 234A of the I-T Act against late filers. You would invite a penalty of Rs. 5000 in case you file it after the due date and before December 31. The penalty goes up to Rs. 10,000 in case you file your returns December 31, 2018. If your income is not more than Rs. 5 lakh, the penalty levied is Rs. 1000.
The time limit to revise your ITR has been reduced in case of late tax filing. The two years’ time span has been now been changed to one year from the end of the financial year, which is March 31, 2019 for this financial year.
The writer is CEO, BankBazaar.com.