Benefits Of Filing ITR And Mistakes To Avoid While Filing
Income tax return filing is an annual liability for businesses as well as individuals whose income is taxable. Taxable income implies annual income that surpasses the tax exemption limit. However, even for businesses with no income or those with non-taxable income, it is recommended to file ITR even if they don’t have a tax payment liability. This is because there are several benefits of filing ITR which we shall explore here. But first, let’s start with the basics.
What Is ITR?
Income tax return or ITR is a statement of the income earned by the businesses or individuals through various sources and their tax liability thereon. Alternatively, ITR or Income Tax Returns can be defined as a form in which the taxpayers file information about their income earned and tax applicable to the income tax department.
The applicability of ITR forms varies depending on the sources of income of the taxpayer, the amount of the income earned and the category the taxpayer belongs to like individuals, HUF, company, etc.
ITR filing is mandatory for all individuals whose income is over Rs 2.5 lakh and is aged under 60 years. Senior citizens, whose annual income is under Rs 3 lakh, are exempted from filing ITR. In the case of very senior citizens above 75, ITR filing is not required if their income comes only from pension and interests on deposits.
The ITR needs to be filed by every taxpayer on or before the specified due date. The ITR filing due date for the financial year 2020-2021, for individuals and taxpayers including small businesses, other than a company, (that is not covered under tax audits) has been extended to December 31, 2021. The previous deadline for filing income tax returns was 30th September 2021.
There are various sources of income that can be taxed and these include-
- The income from salary
- The profits and gains from a profession or a business
- The income from a house property
- The income from capital gains
- The income from other sources such as interest on deposits, dividends, royalty income, gains from selling a house, winning a lottery or prize money, etc.
Benefits Of Filing ITR
As mentioned earlier, there are quite a few benefits of filing ITR even if a business or individual is exempted from it. Some of the ITR filing benefits are as follows-
- Easy Loan Approval
Filing of ITR can help taxpayers get quick loan approval whether it’s a home loan, car loan, personal loan or any other loan application. While applying for a loan, one of the mandatory documents required to be submitted is the ITR for the last 2 or 3 years. The ITR helps the lenders to assess the income stability as well as the repayment capacity of the borrower. This in turn helps in the quick sanction of the loan. Therefore, easy loan approval is one of the main benefits of filing ITR regularly and timely.
- Claim Tax Refund
Often tax is deducted from the income at the source itself, even if the income falls within the exemption limit and this deducted tax is called TDS. This TDS can be claimed while filing income tax returns irrespective of whether the taxpayer falls in the exemption category or not. The regular filing of ITR makes it easy to claim tax refunds.
- Rapid Visa Processing
Another one of the benefits of filing ITR is that it assists in the rapid processing of visas and is one of the mandatory documents required for visa application. Most embassies and consulates ask to furnish copies of the income tax return from the past few years at the time of visa application. It is therefore advisable for taxpayers to file their ITR at the right time since it is required for processing visas.
- Proof Of Income And Address
The income tax return can act as proof of income in several cases, such as while applying for a loan. The ITR is asked to be submitted as a mandatory document by authorities and organisations since it acts as proof of income as well as a proof of residence (proof of address). Therefore it is beneficial for taxpayers and businesses to file for ITR as it acts as proof of address and income.
- Carry Forward Losses
One of the benefits of filing ITR on time (within the due date) is that taxpayers can carry forward their losses to the subsequent years, which in turn can be used to set off against the income of those subsequent years. In other words, taxpayers can deduct certain losses from the relevant income which will help them reduce their tax liability of the future income. This ability to carry forward the losses is only possible if the ITR is filed on time.
- Avoid Penalties
Another one of the benefits of filing ITR on time is that it helps avoid penalties. If taxpayers are required to file their tax returns according to the income tax plan (and fall in the taxable category) but they don’t, then the tax officer can impose a penalty. The penalty levied can be up to Rs.5,000 to Rs 10,000. To avoid penalties it is recommended that taxpayers file their ITR on time.
Along with the above benefits of filing ITR, the timely filing of ITR creates a positive image of the taxpayer being honest and not a tax-evader. It also helps the taxpayers with several application processes too, such as-
- Easy approval of government tenders
- Purchase of insurance policy with higher cover
- Rapid processing of credit card application
- Assistance with claiming depreciation
In addition to the above, the ITR also acts as an important document that contains more detailed information than Form 16, entailing the taxpayer’s income and taxation information with revenue from other sources. This document thus serves as an important document that can be submitted for the application of loans, government tenders, credit cards, visas, etc, speeding the approval process.
These benefits of filing ITR make it evident that taxpayers who are exempt from paying the taxes can also benefit from filing ITR and they can avail ITR filing services offered by deAsra to file their ITR quickly and on time.
Mistakes To Avoid Making While Filing ITR
While availing the benefits of filing ITR timely, there are certain mistakes that taxpayers must avoid when filing their returns. These mistakes include-
- Not reporting income from interest through a savings account
- Not including interest income from fixed deposits
- Not reporting income from dividends earned
- Ignoring the interest earned on money gifted to spouse and/or child
- Filing the wrong ITR form
- Forgetting to complete the e-verification process after filing the returns
- Not comparing the new versus the old tax regime to optimize tax-saving
Avoiding these mistakes while filing income tax returns will further help taxpayers pay the correct tax amount and allow them to avail the various ITR filing benefits. The details regarding the ITR filing process and along with information pertaining to the ITR forms can be found here. Alternatively, taxpayers can always connect with deAsra for assistance and guidance regarding ITR and its timely filing.