Filing of your income tax return (ITR) is mandatory under the Income Tax Act, 1961 under certain circumstances. For instance, if someone’s income exceeds the maximum amount not chargeable to tax, one is required to file income tax return. Similarly, filing ITR is mandatory for ordinary residents having overseas assets or in case certain exempt income exceeding specified threshold, etc. However, in addition to the same being a requirement under the income tax laws, you also stand to benefit in the following ways from filing your income-tax return, even if your income is not taxable:
1) Refund of TDS: In case tax has been deducted at source (TDS) by the person paying your remuneration, you may need to claim the same as a refund from the tax authorities depending upon your taxable income. In order to claim such refund of TDS, you would be required to file your income-tax return.
2) Claiming additional deductions: If you are a salaried individual, your employer would have deducted TDS from your salary. However, “if you wish to claim additional deductions (e.g. donation to eligible institutions etc.) which have not been considered by your employer, you can do so by filing your income tax return,” says Parizad Sirwalla, Partner and Head, Global Mobility Services, Tax, KPMG in India.
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3) Carry forward losses: If you have incurred a loss from specified sources of income (i.e. loss from sale of capital assets, house property income, loss from business/ profession), you can carry forward the same to subsequent 8 years for set off against other income from the same head of income. You would be eligible to claim such carry forward of losses and set off in subsequent years only if you have filed your return within the prescribed due dates.
4) Avoid penalties: From FY2017-18, if you were required to and did not file a tax return you are required to pay a fee up to Rs 10,000 for non-filing of the tax return. Further, “if you have not filed a return and the tax department discovers that there was taxable income in addition to taxes and interest, there could be prescribed penalties ranging from 50 to 200 per cent,” says Sirwalla.
5) Avoid additional interest: If any taxes are payable (over and above the TDS and other payments made) by you, a belated return can invite additional interest @ 1 per cent per month for the balance tax payable.
6) Easy loan processing: It is generally observed that various financial institutions/ banks insist on tax return copies filed while processing applications for housing loan, education or vehicle loan etc. Generally income tax returns of the last three years are required for taking any big loan.
7) Processing credit card applications: Further, banks/ financial institutions may also consider copies of tax returns as evidence while processing credit card applications.
8) Processing visa: As per the regulations in various countries, providing copies of your income tax return filed is a mandatory requirement for the processing of your visa.
9) Proof of residence: If you have been filing your returns and a tax assessment order is passed for any year, the said assessment order can also be used as a proof of residence for applying for Aadhaar or passport.
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10) Reporting high-value transactions: Under the current environment of enhanced use of technology by the income tax department and various other regulators/ institutions, “it is likely that any major transaction undertaken by you (e.g. purchase of property, foreign travel, buying car, investing in mutual funds/ bonds etc.) would be reported to the income tax department. Hence, by filing your return you can appropriately report these transactions (wherever possible) and corroborate the same with your level of income,” says Sirwalla.
Keeping all this in mind, by filing your tax return you are complying with the law and also helping yourself in various above-referred aspects.