Filing of the return of income is mandatory for people in India if their income exceeds the basic exemption limit in a financial year, which under the old tax regime is Rs 250,000 in case of individuals who are not senior citizens, Rs 300,000 in case of senior citizens and Rs 500,000 in case of super senior citizens. Under the new tax regime, the basic exemption limit is Rs 250,000 for FY 2022-23, irrespective of the age of individual taxpayers.
Besides, ITR filing is also mandatory in certain cases like when someoane has paid more than Rs 100,000 towards consumption of electricity or has undertaken foreign travel for over Rs 200,000 in an FY, or wants to claim a tax refund or carry forward losses to the next financial year.
However, there are many other benefits related to filing the tax return even for those who are not otherwise mandatorily required to file an ITR. Here is a look at some of them:
1. Refund Claim: When a person has paid excess tax (by way of TDS, TCS, or advance tax), he can claim a refund of such excess tax by filing an ITR. He can’t claim a refund if he fails to file his income tax return on time.
2. Carry forward of losses: If you have computed losses from any head of income which cannot be set-off against the current year’s income, the same would be allowed to be carried forward only if a tax return has been filed for the year of incurring the loss.
“If an individual incurs any loss during a financial year, he can carry forward such losses to future years by filing an income tax return. This will subsequently help the assessee to reduce the tax liability in subsequent years by setting off such losses with the future income,” says Naveen Wadhwa, DGM, Taxmann.
3. Mandatory to file: Several entities (companies, firms, etc.) must furnish the ITRs irrespective of the income/loss during the year. Further, Section 139 stipulates various circumstances in which filing of an ITR is mandatory irrespective of the amount of income.
4. Not liable for a higher tax deduction or collection: Section 206AB or Section 206CCA prescribes the deduction or collection of tax at higher rates where a person fails to furnish his return of income for a specified period and the amount of tax deduction/collection during the period exceeds the specified limit. A person can avoid such higher tax deduction/collection by furnishing an income tax return.
5. Avoid late fee and Interest: Non-furnishing or late furnishing of return of income attracts interest under section 234A. Also, “delay in furnishing return of income attracts fees under Section 234F, which varies from Rs 1,000 to Rs 5,000,” informs Wadhwa.
6. No best judgement assessment: If a taxpayer files the ITR, the Income Tax Department will not do the best judgment assessment.
7. Used as income proof: An ITR is a valid proof of income of an individual, which can help the low-income group for claiming certain subsidies, among others.
“ITR can be used as a proof of income earned by an individual for a particular tax year. This may be relevant for visa applications for certain countries etc,” says Parizad Sirwalla, Partner and Head, Global Mobility Services, Tax, KPMG in India.
8. Address proof: If you have been filing your income tax returns regularly, then the assessment order can act as a proof of residence for applying for either Aadhaar or passport.
9. Loan and Credit Card approvals: Many banks ask for the ITR as a proof of income while applying for loans or credit cards. ITR is an authenticated proof of income; it aids in faster processing of loans and credit card applications.
10. Ease in Visa applications: Certain countries ask for a copy of the tax returns for the last couple of years in the visa applications. Thus, ITR filing helps one prepare oneself in advance.