Important Benefits of Filing Income tax return

Have you ever wondered why does an individual file his Income Tax Return? Simply, people earn some income during a particular year and generally make couple of investments in various schemes and undertake several expenses related to their business or profession. On such income earned by the individuals, they need to pay some amount of tax to the government. Hence, in order to declare the income and make such payment of tax, the Income Tax Return is filed.

However, it’s not that you can file the Income Tax Return only if you have to pay taxes. You can voluntarily file it, rather, you should voluntarily file it as there are numerous benefits attached to the same. Let's have a look at the conversation between Arun, Tax Consultant (Fictional Character) and Rohit, a businessman (Fictional Character) to have a better understanding on the basics and importance of filing ITR.

Rohit: Arun, what is an ITR?

Arun: Income Tax Return, i.e. ITR, is a form that a person has to submit to the Income Tax Department. It contains information about a person’s income and the taxes to be paid on it during the year. Information fed in ITR should pertain to a particular financial year, i.e. beginning on 1st April and closing on 31st March of the following year.

Rohit: Okay, who all individuals need to file ITR?

Arun: Rohit, firstly you need to know who is referred to as an individual as per the Income Tax Act. Individual refers to the natural human being, whether male or female, minor or major. An individual's gross total income comprises wages, salaries, dividends, interest, business income, and any other income he earns throughout the year.

It is obligatory to file income tax returns for all resident individuals of India whose total income is above Rs. 2.5 lakh after eligible deductions and are below 60 years of age. Individuals of the age of 60 and 80 or above are required to file their ITR if their net income is more than Rs. 3 lakhs and Rs. 5 lakhs, respectively. Individuals having income below the basic exemption limit are not required to file ITR by law.

Rohit: Oh! Is filing ITR important only for declaring income to the Income Tax Department or there are some other benefits too.

Arun: The filing of income tax return is not only for the purpose of declaring earnings to the Income Tax Department and paying taxes, but it allows you to avail other benefits too, that can be advantageous for you in the short and long-term.

Rohit: All right! Can you sum up some advantages of filing ITR?

Arun: Sure Rohit!

Some of the benefits of filing income tax return are:

ITR receipt acts as a very important document

ITR receipt acts as a proof of Income of a person and of payment of taxes. It is much more detailed than Form 16. It contains details of the total income, including details of income from respective sources.

Ease in claiming tax refunds

It is very important to note that one can claim a tax refund only if he is filing an income tax return after claiming all the eligible deductions for that financial year. Therefore, if you are a salaried person who is getting salary after deduction of TDS, or if TDS is getting deducted on interest income of your fixed deposits, or TDS is getting deducted in any other way, it is essential to file your ITR to claim a refund of the tax deducted, if any, which is reflected in your Form 26AS.

Ease in getting loan approvals

Filing ITR helps individuals when they have to apply for a vehicle loan, house loan, etc. The majority of banks ask for the copy of income tax returns of last couple of years as proof of income statement of a person. This serves as a mandatory document for the loan approval.

Adjustment of losses of previous years

Filing ITR on or before the due date enables the individual to carry forward losses to subsequent years, which ultimately get set off against the income of subsequent years. This means deduction of certain losses from the relevant income helps the individual reduce his future income tax liability. This is only possible if one files his ITR.

Quick processing of VISA

Many embassies require an individual to furnish copies of his tax returns for the past few years at the time of the application for a visa. These are amongst mandatorily required documents and hence it is always advisable to timely file your ITR.

Saves from Penalty and Prosecution

Evasion of taxes and late filing of ITR carry penalties around the world, including India. Therefore, filing income tax returns and doing so on time save an individual from unnecessary difficult situations with the Income Tax Department.

Rohit: Oh, so many benefits! See, I want to file my ITRs for all the earlier years for which I have missed so that I can also avail all these benefits. Please let me know the procedure for the same.

Arun: No Rohit, now you cannot file your ITR for earlier years. Now, you can file your return only for last year as a belated return. The due date for filing a belated return is 31st December following the relevant financial year.

Rohit: Okay, tell me one more thing Arun, my wife is a homemaker. Does she also need to file the ITR?

Arun: See, if she is earning income from any source and such income during the financial year is more than the basic exemption limit applicable to her, then she has to file the ITR. But, if she is not having any income or her income is less than the basic exemption limit, then it is not mandatory for her to file the return. However, as I mentioned, it would be beneficial for her if she voluntarily files the same.

Rohit: Okay Arun, please let me know, what are the documents required to file ITR?

Arun: Rohit, generally, the following documents are required to file an income tax return:

* PAN Card
* Aadhaar Number
* Income Tax Login credentials
* Bank Statement
* Investment proof for claiming deductions
* Records of Sale or Purchase of Assets/Investments
* Proof of payment of insurance premium, PPF, purchase of NSCs, Mutual funds, donations etc.

Rohit: What is e-verification of ITR, and how is an ITR e-verified?

Arun: An ITR is e-verified through an e-verification code. Electronic Verification Code (EVC) is a code sent to the registered mobile number of the tax filers while filing their returns online. It helps to verify the identity of the tax filers. An EVC can be generated through the e-filing portal of Income Tax Department. After successful e-verification of ITR, a taxpayer is not required to send physical ITR-V to Bangalore for further processing. Your ITR can be verified electronically through any of the following means:

* Via Aadhaar OTP
* Via net banking
* Via EVC on the Income Tax website
* DSC

Rohit: Are any proofs required to be attached while filing the ITR?

Arun: No, taxpayers are not required to attach any documents while filing an income tax return. However, the taxpayers should keep it carefully to provide to the department if needed in case of scrutiny or any assessment.

Rohit: What are the due dates of filing ITR?

Arun: Since, you are an individual, let me tell you the due date applicable to you. The last date of filing Income Tax Return is generally 31st July following the relevant financial year. However, for financial year 2020-21, CBDT has extended the due date to file the Income Tax Return of the Individual Taxpayer to 30th September, 2021.

Rohit: Okay Arun, now I have understood the basics of ITR filing. Any other point you want to add?

Arun: So, Rohit, let me summarize why you should timely file your ITR. You must file your return and pay due taxes to the government to be a responsible citizen of India. Also, if you are liable to file ITR, then in order to save yourself from any penalty proceedings to be initiated against you, you must file your return within due date. In case you are not liable to file ITR, then also you should file your return to avail the benefits that I mentioned earlier.

Rohit: All right Arun! Thank you so much for clarifying my doubts…

Note: The due dates mentioned in the article are according to the Income Tax Act, 1961. However, these are subject to change as per the notifications and circulars issued by CBDT from time to time.

Authored by CA Rahul Pareva, assisted by Kriti Agrawal
For any queries or suggestions, email at info@manishanilgupta.com

About the Author and Firm

CA Rahul Pareva possesses experience in litigation and advisory matters. He has been representing various clients before Tax Authorities. He is associated with Manish Anil Gupta & Co., CA in District Centre. MAG is renowned tax and *audit firm in Delhi* where clients complexities are transformed into solutions

Disclaimer!

This article is meant purely for knowledge and educational purposes. It contains only general information and references to legal content. It is not legal advice, and should not be treated as such.