When your income reaches a certain threshold, tax is levied. To pay the taxes, an ITR must be filed.
ITR is a form on which you fill out information about your earnings during the previous fiscal year (1st April to 31st March).
Everyone, whether a salaried employee, a partnership, a company or even a Society etc, is required to file an ITR.
You may also benefit from filing an ITR. The several advantages of submitting ITR are listed below:
1. As a Legal Document:
The ITR is a very important legal document. This has been reported to the authorities. It provides evidence in two ways:
a) Identity Proof
The return that you fill out may be required as identification in a variety of situations, including when applying for an Bank Loan, Vias or any other document. It is also accepted as valid proof of residence by the government.
b) Income Proof
The ITR form, as previously stated, includes a detailed list of all your incomes and expenses. This is how the tax you must file is calculated.
While some transactions, such as the purchase of a home, require you to present proof of income, ITR can also be used in these cases.
2. Important Document While Applying for Loans:
The bank requests certain paperwork from you when you decide to apply for a loan to buy something, such a car or a new home for your family or your business. These documents are:
a) Aadhar card
b) PAN card
c) Driving license
d) Photo, etc.
Proof of income is one of the most important documents required. Generally, banks requested ITR for the previous three years. This is done to assess your past and current financial situation, as well as to know your ability to repay the loan.
ITR can be used not only to apply for bank loans, but also to obtain a credit card. Credit card companies will also request your previous salary and tax returns before issuing you a credit card.
3. Can Help in Deduction Claims:
The government permits you to take various deductions in order to lighten the burden on taxpayers and to motivate more individuals to pay their taxes.
a) These deductions and exemptions can be used in certain investments to help reduce the amount of tax you ultimately pay.
b) Rebates and TDS may also be reclaimed.
However, you must file an income tax return in order to be eligible for these tax breaks. You are not eligible to make a deduction if your ITR has not been filed.
4. Avoiding Punishment and Penalties:
The Income Tax Act of 1961 governs the taxes that are applicable to you. Hence, if you earn more than the exempt amount, you must pay taxes.
As a result, if you are entitled to pay income taxes but nevertheless fail to file your income tax returns, you will be penalised.
A fine of up to Rs 5000 might be assessed by the income tax officer. You may also face further severe penalties if you fail to file your returns.
To avoid these fines and penalties, you should file an ITR.
5. Losses can be transferred:
Sections 70 and 71 of the Income-tax Act of 1961 contain provisions for carrying forward losses from one year to the next. This means you can defer your loss until the following assessment year.
We hope the above blog was helpful in enhancing your knowledge on the matter. In case of any queries feel free to get in touch with our team of experts.
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CA Umang Jain
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umang@caumang.com
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