Benefits of Filing ITR
Filing an Income Tax Return (ITR) is a good practice, even if it is not a mandatory requirement for a certain class of assessees. This is because, it not only serves as a legal record for the financial transactions, but also offers various benefits that can help to streamline various financial and legal processes in India.
This article highlights the benefits of filing ITR in detail.
Table of Content
What is an ITR?
An ITR is a form in which the taxpayer self-declares their incomes, assets, refunds to be claimed, and payment of appropriate taxes. For few it is mandatory while others file it to avail several benefits.
Who has to File ITR?
Following persons are required to file ITR compulsorily:
An individual whose income exceeds the basic exemption limit.
An individual who owns assets outside India and earns income from foreign sources must file an ITR.
Individuals who pay more than INR 1 Lakh towards the electricity expenses.
Assessees who deposit more than INR 1 Crore in their current account.
When more than INR 2 Lakh is spent on overseas travel.
Benefits of Filing ITR
Following are the benefits of filing an ITR:
Compliance with Law: Individuals and entities whose income exceeds the basic exemption limit are compulsorily required to file the ITR. Moreover, companies and firms are required to file the ITR irrespective of income or profits earned by them. Thus, ITR filing ensures that the legal compliance is made and thereby avoids the penal consequences.
Proof of Income: ITR is a definitive document that serves as proof of annual income. It is very useful for self-employed individuals and freelancers who may rely on it as a proof of their income and financial history.
Easy Loan Approvals: While availing loan, banks and financial institutions request for ITRs of past 2-3 years. This is a part of the loan application process while sanctioning home loans, personal loans, and vehicle loans, as the ITR provides an assurance about the repaying capacity of the applicant.
Easy Visa Application: Several embassies and consulates require previous years ITR receipts as a part of processing the Visa application. This is important as an ITR provides a checkup of the financial health of the applicant and also an assurance that one can support oneself while traveling to foreign country.
Easy Refund Application: In case of an income tax paid in excess, that is, in case of refund of income tax, ITR filing is mandatory. Only upon timely filing of ITR allows one to claim income tax refund, if any.
Carry Forward of Losses: To carry forward losses of the current year, if any and to offset the same from future incomes or profits, timely filing of returns is compulsory. Individuals and businesses can offset losses only through the timely filing of ITR.
High-Value Transactions: Filing ITRs can add a great value to those who engage in high-value transactions, such as purchasing real estate or investing large sums of money in mutual funds. This is because the income reflected in ITR is treated as a legal income.
Government Tenders: Filing ITRs is often a mandatory requirement for applying for the Government tenders. Businesses applying for Government tenders have to furnish ITR as it acts as a proof of the financial strength of the company and enhances its credibility.
Insurance Coverage: Certain insurance policies, particularly, policies involving large amounts of coverage, require proof of income. ITR receipts are considered as a valid proof of income.
Avoidance of Penalties: Under certain circumstances, timely filing of ITR helps to avoid penalties. For example: filing a Nil ITR is also beneficial. This is because, if in future ITR is required for foreign travel or high-value transactions, an individual can be safeguarded against the penal consequences had the ITR not filed on time.
Challenges in Filing ITR or Disadvantages of Filing ITR
Though the benefits of filing ITR are many, there are certain disadvantages as well or challenges in filing ITR. Below are some of the disadvantages of filing ITR:
Level of Complexity: The accuracy of filing an ITR depends on the understanding of the Income Tax Law and its provisions, which often require help of a Tax Expert. For few people, particularly small businesses or freelancers, the process can be complicated and time consuming, necessitating detailed record keeping.
Costs: Due to the complex provisions of the Income Tax, taxpayers hire tax professionals. The tax professionals' charge varies according to the complexity of the ITR.
Scrutiny: When an ITR is filed disclosing a higher income or higher deductions, chances of getting a scrutiny notice from the Income Tax Department increases. This again increases the compliance burden of the taxpayer.
Penalties for Errors: If mistakes or errors are made intentionally and with the intent to evade tax, the Income Tax Department may issue notices and, in some cases, may also impose penalties.
FAQ
Q1. How is filing an ITR useful for loan applications?
Banks or financial institutions require income proof while processing the loan application for home loans, vehicle loans, or personal loans. ITR receipt can be provided as a proof of income to banks or financial institutions.
Q2. How is filing an ITR useful for carrying forward losses?
Timely filing of ITR allows to carry forward the losses, if any. This benefit will allow a set-off of losses from future incomes or profits. As a result, to avail the tax relief, ITR filing becomes very important.
Q3. Can a tax refund application be made without filing an ITR?
To avail the income tax refund, if any, ITR filing is compulsory. Without timely filing of ITR, the income tax refund cannot be claimed by the taxpayer.
Q4. What is the use of ITR filing for self-employed individuals?
For self-employed individuals, the ITR receipt acts as a proof of income which in their case, there is no other proof of their earnings. ITR serves as a legal proof of their income sources and financial stability.
Q5. What is the benefit of ITR filing to the students who want to study abroad?
Students who want to avail admissions in foreign universities and plan to travel abroad for study purposes, have to submit their proof of income or their parents' proof of income. ITR receipt provides a basis to assess the financial stability of such students.
Q6. What is the use of ITR filing in a Visa application?
Many countries require submission of ITR receipts of the applicant while processing the Visa application. The financial stability of such an applicant can be ensured and also a reliance can be placed on whether such an applicant will be able to provide financial support to oneself or not.
Q7. Can an assessee file an ITR even if there is no income during the financial year?
Yes. An assessee can file an ITR even if there is no income during the financial year. Filing a Nil ITR also has its own benefits. Future penalties are avoided.
Q8. Can a taxpayer file the ITR on own?
Yes. ITR can be filed by the taxpayer on his own. Provided, the taxpayer is well-versed with the provisions of the Income Tax Act.
Q9. Does an ITR filing require expert help?
The Income Tax Act has its own complexities to interpret and implement it correctly. Taking expert advice and filing the ITR with the help of a Tax Expert can allow the taxpayer to maximize the tax benefits and minimize the tax liabilities. Also, the Tax Expert can provide an accurate filing, thereby avoiding penal consequences.
Q10. What could be possible risks in self-filing an ITR?
The possible risks in self-filing an ITR includes: claiming deductions incorrectly, failing to mismatch the AIS (Annual Information Statement) and TIS (Taxpayer Information Statement) data with the ITR data, failing to claim TDS, wrong tax calculations, non-disclosures of important information, and so on.
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