Confusion prevails regarding whether an individual should file his income tax return (ITR) even if his taxable income falls below the taxable limit or has no taxes due by him. The best way to overcome this confusion is to carefully tradeoff between the benefits of filing the income tax return and the effort involved in doing it. The below-mentioned points will help you understand why it is in your interest to file the tax returns regularly even if you don’t owe anything to the government:
1. Claiming Tax Refund
The joy of receiving tax refund equals that of getting the pay cheque. And, you need to file tax returns if you wish to claim a tax refund. Not doing so would lead to forgoing the refund.
2. Carry forward losses
The Income Tax laws allow you to carry forward and set off (adjust) certain losses against your future gain/income, e.g. capital losses. “These losses can be carried forward for 8 consecutive years to be adjusted against future capital gains resulting in significant tax savings for the clients. However, filing income tax returns within the due date (31st July) is crucial to be able to do so,” says Chetan Chandak, Head of Tax research, H&R Block India.
3. Easy loan or card processing
At the time of applying for a vehicle loan or a housing loan, most banks ask the applicant to furnish copies of income tax returns for the last 2-3 years. This helps banks understand your financial position and your ability to repay the loan.
“Providing a copy of income tax returns receipts make it easier for you to get your loan application approved in quick time. Similarly, credit card companies also insist on having proof of return prior to issuing a card,” says Chandak.
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4. Visa processing
If you are planning to immigrate to another country or exploring a high-paying overseas job opportunity, then prepare yourself in advance. “Most of the foreign consulates require you to furnish the copies of your tax returns for the last couple of years at the time of the visa interview. This is especially applicable when applying for a visa for the US, the UK, Canada or Europe,” informs Chandak.
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5. Buying a high life cover
Nowadays, buying a life cover of Rs 50 lakh or Rs 1 crore has become common. But these covers are available against your documents to verify your annual income. The sum insured an individual can receive with a term cover depends on various factors; one of it is the income of the insured.
6. Avoid paying penalty
If you are required to file your return under law, but miss to do so, then the officer may impose a penalty of up to Rs 5,000 under Section 271F.
7. Avoid paying additional interest
If you owe some taxes and still do not file your tax return, then you may be liable to pay additional interest u/s. 234A along with other penalties for avoiding the taxes.
8. Revised returns
If you file the original return, then you automatically get the right to revise your returns. In case there is any error or omission in the original return, then you can file a revised return.
9. Address Proof
If you have been filing your returns regularly, then the assessment order can act as a proof of residence for applying for either Aadhaar or passport.
10. High-Value Transactions
If you regularly file your income tax return, then it will create a strong financial background and credibility. So, “when you do any high-value transactions such as purchase or sale of property, cash deposits in bank, investment in mutual funds, credit card bill payments, etc., then you will not receive a notice from the Income Tax Department,” says Chandak.