It becomes extremely essential for all those individuals who come under the ambit of the income tax law of India to file their Income Tax Return. One perception among many individuals is that filing of ITRs becomes necessary only for those individuals who earn above a certain amount. However, the importance of filing ITRs can also become evident even when the individual earns below the taxable limit, especially when there is a need to get the tax refunded or certain transactions need to be filed.Why does everybody need to file an ITR?
The submission of an Income Tax Return (ITR) is an extremely important responsibility for an individual that comes within the ambit of the income-tax laws of India. It is generally perceived that the submission of ITR is required from individuals only when their income is taxable. Nevertheless, ITR filing may be required by individuals in situations where their income is not taxable for the purpose of getting the refund applied, for the purpose of filing certain transactions, or for maintaining proper records. The need for filing ITRs is explained in more detail in this paper.
What is an ITR?
1. It Ensures Compliance
Compliance with tax regulations is one of the major reasons for which you should file the ITR in case you have to do it according to law. Non-compliance may bring about additional expenses.Organised filing also ensures that your tax documents are properly documented. Instead of having to find out how much money you made and your taxes after several years, you will have an official document for every fiscal year.
2. It Helps You to Obtain a Tax Refund
In some cases, tax is withheld from an individual’s earnings even though the total amount payable as tax will be less than the withholding amount. This usually occurs through Tax Deductible at Source (TDS).
An ITR helps an eligible taxpayer to obtain a tax refund of any excess tax that has been paid or withheld. If this is not done, then getting this amount may prove impossible using the refund method.
3. It Is Helpful in Loans and Financial Purposes
The ITR acknowledgment letter is a financial document that proves to be helpful. Financial institutions can demand your income-tax returns while evaluating your applications for home loan, personal loan, business loan, and any other kind of loan.
A habit of filing your income-tax returns consistently proves that you have an income and you fulfill all your financial duties.
It Can Be Significant For Visa Application
People who visit other countries for educational, employment, business, or any other purposes may be required to provide the documents related to their financial status. Depending upon the country and the kind of visa, income tax returns may prove useful.Consequently, it might be a good idea to ensure that there is a continuous process of ITR filing for visa application purposes.
4. ITRs Could Be Significant for Visa Applications
Individuals who wish to travel abroad for purposes like studying, working, business, or other activities might be required to submit proof of their financial standing. Based on the country of destination, ITRs might help establish income and financial standing.
Consequently, it would be useful to ensure that there is a continuous record of ITR filing.5. It Facilitates the Carrying Forward of Some Losses
Whereas under the applicable tax laws, certain losses may be allowed to be carried forward and offset from any eligible future income, it is necessary that certain conditions are fulfilled by the due date.
Thus, filing of the tax return by the due date may be crucial to the taxpayer who wants to retain the benefit of carrying forward his eligible loss.6. It Generates a Financial Record
The ITR generates a financial record of one’s income, expenses, investments, taxation, and other financial matters that have been submitted to the tax authorities.
The records generated over several years can be very useful in financial planning, getting loans, property dealings, business, etc. Wherever proof of income is needed.7. It Promotes Better Financial Discipline
Completing an ITR will prompt individuals to keep a record of their salary, interest income, investment, capital gain, deductions, and taxes paid. Such practices will go a long way in improving the financial discipline of such individuals.
The process can prove particularly beneficial for young professionals who are filing tax returns for the first time in their lives.
Conclusion
It is not always right to consider ITR filing as a government requirement alone. When it is a legal requirement, it is a necessary tax compliance activity. Even when it is not a legal requirement for an individual to file ITRs, it may sometimes offer practical benefits like getting refunds, keeping track of income, carry forward of losses and for application purposes.
But the claim made that “ITR filing is mandatory for everyone” does not hold much ground. This requirement depends on income and the conditions of the taxpayer under the tax law. Thus, it becomes necessary for taxpayers to see what requirements they need to follow.
In conclusion, timely and proper ITR filing is a critical aspect of financial planning. It can help taxpayers save themselves from problems while leaving behind a financial history.