ITR Filing: Top 10 benefits of filing income tax return on time even when not compulsory

Income tax return filing is compulsory for individuals in India if their income exceeds the basic exemption limit in a financial year. In the old tax regime, this limit is Rs 250,000 for non-senior citizens, Rs 300,000 for senior citizens, and Rs 500,000 for super senior citizens. Under the new tax regime, the basic exemption limit is Rs 300,000 for FY 2023-24, regardless of the taxpayer’s age.

Additionally, filing an ITR is mandatory in specific situations such as exceeding Rs 100,000 in electricity consumption, spending Rs 200,000 or more on foreign travel in a year, depositing more than Rs 1 crore in one’s current account or Rs 50 lakh in a savings account, claiming a tax refund, or carrying forward losses to the next financial year. Despite these requirements, there are various advantages to filing a tax return, even for individuals not obligated to do so.

“Filing a tax return in such cases makes one compliant with the law. This would avoid trigger of sudden notices and queries from the tax department, levy of interest and penalty for non-filing and undue hardship to the tax payer,” says Aarti Raote, Partner, Deloitte India.

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Additionally, timely filing of tax returns helps carry-forward and claim set-off of losses, claim refunds, declare your foreign asset holdings to the Government even if one does not have any immediate income from it. “The declaration of foreign assets is extremely important as not reporting this would be looked at as ‘assets not declared’ and trigger a penalty up to Rs 10 lakh,” adds Raote.

Here we take a look at 10 benefits of filing a tax return on time even when not compulsory:

1. Avoid Penalties and Interest

Starting from the fiscal year 2021, individuals who fail to file their ITR by July 31st will be subject to a penalty of Rs 5,000 under section 234F of the Income Tax Act. This penalty amount was previously Rs 10,000. Failure to furnish or delayed furnishing of income tax return will also result in the imposition of interest under section 234A.

Therefore, submitting your ITR on time will help you avoid unnecessary penalties and interest. Although the penalty has been kept at Rs 1,000 if your annual income is not more than Rs 5 lakh, as a responsible citizen, it is important to fulfill your duty by filing your tax returns.

2. Avoid Scrutiny

Timely submission of your income tax returns can prevent audits by the Income Tax Department. Failing to meet the deadline may increase the chances of being chosen for a review. Nevertheless, submitting your tax returns promptly can spare you from the burdensome and lengthy scrutiny process.

3. Refund Claim

Tax can be subtracted from the interest on Rental Income, Fixed Deposits, Consultancy income, or Salary income. If an individual has overpaid taxes through TDS, TCS, or advance tax, they are eligible to request a refund by submitting an ITR. However, failing to file their income tax return on time will result in the inability to claim a refund.

4. Carry forward of losses

If you have calculated losses from any source of income that cannot be offset against the current year’s income, you can carry forward these losses to future years by filing a tax return for the year in which the loss occurred.

“If an individual incurs a loss during a financial year, they can carry forward such losses to future years by filing an income tax return. This will help reduce the tax liability in subsequent years by offsetting the losses with future income,” explained Naveen Wadhwa, Vice-President, Taxmann.

5. Not liable for a higher tax deduction

Section 206AB or Section 206CCA mandates the imposition of elevated tax rates in cases where an individual neglects to submit their income tax return within the designated timeframe, resulting in tax deduction/collection surpassing the specified threshold. The submission of an income tax return enables individuals to evade such heightened tax deductions/collections.

6. Income Proof

An Income Tax Return (ITR) serves as a legitimate verification of an individual’s income, aiding the low-income demographic in accessing specific subsidies, among other benefits.

7. Address Proof

If you have consistently filed your income tax returns, the assessment order can serve as evidence of residency when applying for Aadhaar or a passport.

8. Visa Processing

Submitting tax returns for the previous few years is a requirement in visa applications for specific countries like the US, UK, Canada, and Australia. This assists them in evaluating your earnings and confirming that you have the means to cover the costs of your journey. Therefore, filing income tax returns aids individuals in getting ready ahead of time.

9. For Buying Term Insurance

Insurance companies frequently ask for Income Tax Return (ITR) records from applicants in order to approve term insurance plans. These records serve as evidence of the applicant’s yearly income, which is used to calculate the coverage amount. By providing their ITR, individuals can demonstrate their higher income level to the insurance providers.

10. Loan and Credit Card approvals

Numerous financial institutions require the submission of Income Tax Returns (ITR) as a verification of income when individuals apply for loans or credit cards. The ITR serves as a legitimate proof of income, facilitating expedited processing of loan and credit card applications.

Thus, filing a tax return is mandatory for persons whose income exceeds the basic exemption limit in a financial year, and also in specific situations. However, even if your income does not exceed the basic exemption limit in a fiscal year, you are entitled to many benefits if you file your ITR every year on time.