The financial year has ended on 31st March. A new financial year has begun. Most people think that they have paid taxes for the last year and made their last-minute “tax-saving” investments. Just when they start to relax, they start to hear about filing of income tax returns.
“I haven’t paid any income tax, why should I file Income Tax Return (ITR)?” This is a very common question. “I have made the required investments to save on taxes to the extent of my taxable income. I do not need to file ITR”, say many others. But, what is ITR? Why is it important? Can we do away with filing ITR? If yes, does it impact us significantly?
Let’s understand “Income Tax Returns”.
Your earnings for a financial year is computed. The earnings could include your salary, any other income in the form of rent, freelance income, returns or dividends from certain investments, etc. As per the Income Tax rules, the amount of tax to be deducted is arrived at and the tax already paid by you is calculated. The ITR statement captures all this data and computes if you are eligible for any refunds. ITR is then filed successfully and your refund, if any, is credited back to your bank account.
Why is it important to file ITR?
If you have successfully filed ITR, it is a proof with the Income Tax Department of the Govt. of India that you have paid the necessary taxes to the government. Non-filing of ITR can bring you under the Income Tax Department’s lens and it could lead to penalties, and legal action.
The benefits of filing ITR in time are as below:
Being on the right side of law and claiming refunds: By filing an ITR, you are being transparent about your earning with the Income Tax department. And, you also ensure that you are compliant with the laws of the land. An ITR also helps you to claim a refund in case you paid more tax than required.
Home Loans or vehicle loans: Most professionals decide to go for a home loan or for buying their own vehicle once they have saved a good amount of money. The same professionals also make the mistake of not filing their ITR in the early years of their professional lives. A home or a car would mean taking a loan from a bank or a financial institution. Such financial institutions often ask for a copy of the ITR filed in the previous three financial years.
Abrupt investments, donations and offsetting losses: If you invest in the stock markets, you may incur a short-term or long term capital loss. If you have filed ITR, you can offset the past losses in the subsequent years. You can also ensure that any contribution to charity or donations, that is eligible for savings on taxes, can be claimed in the subsequent years, if the ITR has been filed successfully.
Getting an international job posting: If you get an international job posting, you may be asked to produce your ITR filings for the previous financial years. A good record and proper filing of ITR can enhance your chances of getting a VISA and work permit for an international job posting.
For higher life cover and for claiming insurance benefits: If you decide to opt for a higher life cover, your premium would increase. If you have successfully filed ITR for the previous years, the insurance company would be happy to provide you the desired cover faster. Also, in case of death of an earning member, if the nominee claims the sum assured, copies of ITR filed in the previous years is a proof of income to ensure that maximum claim amount is received.
You could have just started working, or you may have been working for years. You may be a salaried professional, businessman or even a housewife, everyone who earns any income should file an ITR. It is a very valid proof of the fact that you have paid taxes based on your income and can come in handy at the most unexpected times.