Filing an “Income Tax Return” (ITR) involves declaring to the relevant authorities the details of your income and the taxes you paid.
As of 2020, Indians with a total annual income within ₹2,50,000 do not need to pay taxes. But, if your yearly income falls under the taxable brackets, you must file a return of income. If you fail to do so in time, you are liable to pay penalties. Even if your net income after deductions bears no tax liability, you must file an ITR.
However, if your gross income is below the tax-free income limit, filing an income tax return is not mandatory. Even so, you should file ITR to enjoy a few advantages.
Advantages of filing income tax returns
1.Avail tax deductions and claim refunds
The Income Tax Act allows several deductions from your gross income. It also offers many exemptions. If you want to claim such rebates, you must file ITR. Such exemptions can make lower your taxable income to nil.
Also, if you have paid tax deducted at source (TDS), but your income is below the tax-slab, you can claim for a refund by filing ITR.
2.Furnish proof of income
Your ITR contains every detail of your income and taxes you paid on it. It is more comprehensive than Form 16. Hence, ITR receipts act as income proof. Moreover, for freelancers and self-employed individuals, ITR is vital to establish their income in financial transactions.
3.Provide address proof
The Income Tax Department sends your ITR receipt to your registered address. Thus, this receipt can serve as proof of your residence. You need to provide address proofs to get documents like passport, Aadhaar card, driving license, and the like. You can use your ITR in such scenarios.
4.Get travel visas
Most foreign embassies ask for previous years’ ITR records during visa interviews. The authorities are very strict about your tax compliance. They want to verify if you have stable income sources in India. Hence, income tax filing is compulsory to avail visas for foreign trips.
5.Ensure credit sanctions
Whenever you apply for a loan, you need to supply income proofs. Your lender looks into your income, among other parameters, to determine your repayment capacity. Every financial institution puts forward a minimum income criterion to be eligible for their loan products. And your ITR receipt acts as conclusive proof in support of your income.
Most lenders will ask you to furnish at least three years’ ITR. Hence, your ITR may help you fund life goals like buying a home or a car or paying children’s higher education fees.
Likewise, credit card providers also require you to submit your ITR before issuing a card to you.
6.Compensate previous year’s losses
You may incur losses in a particular financial year. You can carry such losses forward to reduce your tax burden in ensuing years. With such unadjusted losses, you can claim adjustments in the subsequent year’s tax calculation. But the losses must be recorded in the tax returns of that financial year. Hence, without filing tax returns, you cannot set off those losses against future gains.
7.Register your properties
In most Indian states, you must provide proof of taxes paid when you want to register real estate. And unless you register the property, you cannot claim legal ownership over it in case of disputes. Thus, income tax filing makes it easier to register immovable properties in your name.
Thus, there are several advantages to filing an income tax return. Above all, it helps you enjoy deductions and relief from different forms of taxation. Hence, remember to file your ITR on time.