15 Reasons Why We Should File an ITR
An income tax return is an assessment of the income of a taxpayer. This is an annual statement. All incomes during the year and deductible expenses and losses are declared in this return. It is mandatory for some taxpayers. But in any case filing, ITR has its own benefits. It can help in funding and finance. It creates proof about the earnings of the filer. It provides credibility. We are giving you some reasons to file your return annually without fail.
#1. Penalty for non-compliance
The due date for filing a return for an individual / HUF for f/y 20-21 is 30 Sep 21. Non-compliance will attract late filing fees u/s 234F and interest u/s 234A.
Late filing fees u/s 234F
|Income level||Up to 30 Sep 21||1 Oct to 31 Dec 21||1 Jan to 31 Jan 22|
|Up to 2.5 lac||nil||nil||nil|
|Up to 5 lac||nil||1000||1000|
|More than 5 lac||nil||5000||10000|
Interest u/s 234A
1% per month or part of a month of the unpaid tax amount from the due date of filing return i.e. 1 Oct 21 to the date of actual filing of return.
#2. Set-off of losses
Non-filing of return will disable the person in setting off and carrying forward the losses of that year. Income/loss under different heads of income is calculated. Set-off of losses means adjusting the losses of a year against the profit or income of that particular year. There are different rules for setting off these losses,” Intrahead and Interhead”
The same income head may have various sources of income. If the loss of any source is adjusted with the income of another source within the same income head, then it is called intra-head. For e.g. loss of business A is adjusted with income of business B.
There are certain restrictions that have to be followed for intra head adjustments.
Long-term capital loss cannot be set off against any income other than income from long-term capital gain. Short-term capital loss can be set off against long-term or short-term capital gain.
Loss from speculative business cannot be set off against any income other than income from speculative business. Non-speculative business loss can be set off against income from speculative business.
Income from winnings from lotteries, crossword puzzles, races including horse races, card games, and any other game can not be adjusted to set off any other losses.
Ambiguities Due to Extension of Due Dates for ITR
After making all the intra-head adjustments, if still, any loss remains in an income head, then that loss can be adjusted with the income of other heads. For e.g. Loss under the head of house property can be adjusted against salary income.
There are few restrictions that have to be followed for interhead adjustments.
Loss from the business of owning and maintaining race horses and speculative business cannot be set off against any other income.
Loss from business specified under section 35AD cannot be set off against any other income (section 35AD is applicable in respect of certain specified businesses like setting up and operating a warehousing facility for storage of agricultural produce, setting up a cold chain facility, developing and building housing projects, etc.)
Loss from PGBP cannot be set off against income chargeable to tax under the head “Salaries”.
From the assessment year 2018-19, losses under the head “house property” shall be allowed to be set off against any other head of income only to the extent of Rs. 2,00,000 for any assessment year.
#3. Carry forward of losses
If even after making intra-head and inter-head adjustments, still, the loss remains unadjusted, then such unadjusted loss can be carried forward to next year for adjustment against subsequent year(s)’ income.
Carrying forward of loss is possible only if the return of income/loss of the year in which loss is incurred is furnished on or before the due date of furnishing the return, under section 139(1). It is subject to certain restrictions which are ;
Unadjusted loss under ‘PGBP’(other than the loss from speculative business) can be carried forward for making adjustments in the next year. In the subsequent year(s) such loss can be adjusted only against income charged to tax under the head,’ PGBP’.It can be carried forward for eight years immediately succeeding the year in which the loss is incurred.
Loss from the business of owning and maintaining race horses and speculative business can be carried forward only for 4 years.
If loss under the head “HP” cannot be fully adjusted in the year in which such loss is incurred, then the unadjusted loss can be carried forward to next year. In the subsequent years(s) such loss can be adjusted only against income chargeable to tax under the head “HP”. That loss can be carried forward for eight years immediately succeeding the year in which the loss is incurred.
The “Capital gains” loss that remains unadjusted in the same year can be carried forward to next year. In the ensuing year(s), such loss can be adjusted only against income chargeable to tax under the head “Capital gains”, however, a long-term capital loss can be adjusted only against long-term capital gains. But Short-term capital loss can be adjusted both against LTCG and STCG. Such loss can be carried forward for eight years immediately succeeding the year in which the loss is incurred.
#4. Eligibility for a home loan
Your ITR is the documentary proof of your income earned during a year. Banks and Home loan companies are constantly looking for people who have a steady flow of income which can be proven by your form 16 (for salaried people) or ITR ( business income). They need to take at least 3 years of ITR to see the continuity of income and ascertain the repaying capacity of the person to whom they are giving a loan. They have developed their algorithms based on last drawn salary, average annual salary, yearly business income, age, etc to determine the amount of loan a person is eligible for and the monthly EMI amount he can pay. A good ITR can also provide a discount on the interest rate charged by them.
#5. Refund in case of TDS
Suppose you have made certain investments on which TDS has been deducted on the interest. You have provided certain services, received any consultancy fees, undertaken any contract, or received a salary on which TDS has been deducted. Then the amount of tax already deducted may exceed the final tax liability. In that case, you have to file your return mandatorily and apply for a refund.
Many religious or charitable trusts are involved in education, medical treatment, providing food to the needy, etc and NGOs need extra funds for some specific purposes like new buildings, helping in the time of natural calamities, or pandemics. At that time the donors or investors need to confirm the bonafide of the said organization. Then the previous years ITR s play a very important role in establishing their credentials.
Also, these days when people talk of Venture Capitalist’ funding and Crowdfunding, then the entrepreneur who is initiating the endeavor needs to prove his past record, capacity, and steadfastness to the future stakeholders. In that scenario, ITR plays a very anchoring role in shaping the future of that endeavor.
#7. Business Loan
It is mandatory for every partnership firm and company to file an ITR. Many proprietorship firms also file their returns even when they do not qualify for the limit of mandatory return filing. This is because they know the power of their return filing and also the amount of income disclosed in it. Every enterprise needs funds for its expansion. A bank needs to know the credibility, turnover, income, EMI paying capacity,
Loan amount eligibility etc of the borrower. 3 years ITR is a credible document that provides many of the required answers. More the income of the person, more the loan eligibility.
#8. Various government schemes
Many of the Government schemes are for the economically weaker sections of the society. Be it education of their children, free ration scheme, jobs reservation, minimum job guarantee scheme, provision of life insurance, medical insurance, crop insurance, to get exemption of agricultural income, subsidies in various commodities, loan to entrepreneurs on easier terms without collateral, reservation in higher education, etc. In all these schemes, the applicable income limit (eligibility) can only be established by the ITR of the persons seeking such benefits.
#9. International business presence
Residency status is also established by the filing of ITR. Many incomes are not taxable for Not ordinary residents.
If any resident person has earned income in any foreign country, then that income is taxable in India as well. If that income has been taxed in that country then that amount would be allowed as a deduction against that income in India.
Residents having income from assets abroad Are a signing authority in a foreign bank account or own assets abroad then, filing of ITR is mandatory. People who have to send money abroad under LRS ( liberalized remittance scheme) or receive money from abroad then have to take RBI’s permission. For these transactions, they need to have an account with an authorized dealer (Bank). In all these transactions, the source of money has to be disclosed, which can only be done through an ITR.
#10. Proof of Income and Address for various purposes
Establishing income proof in compensation cases: The Motor Vehicles Act does not make it compulsory to provide the ITR while arriving at the compensation in case of any accidental death or disability. But the Claims tribunal agreed that procedures approved by the Delhi High Court mention the need for ITR in the case of self-employed persons.
The ITR serves as a piece of documentary evidence to ascertain the income of the person to reach the amount of compensation. In the case of a person becoming handicapped or dead while on duty or during his job tenure, ITR will form the base for the amount of compensation.
An ITR receipt is sent to your registered address, which can also serve as residential proof for various official purposes.
#11. Self-assessment of income and expenses
According to the law, the assessee has to file a return of his income earned by him during a financial year. The government has formed various sections under IT act to help the persons in ascertaining their taxable income and tax thereon. All the exemptions and deductions would be available only when they are disclosed in the ITR. Many types of incomes are exempt, but it is necessary that they have to be disclosed in the ITR.
Self-assessment tax is the tax that is paid by the assessee in a case where his tax liability is greater than the sum of advance tax, tax deducted at source, etc. This is only possible when he files his return.
#12. TDS deduction on double rate
Under some sections of TDS like 206AB, the Rate of deduction of TDS in other sections would be higher of the two; a) double of the usual rate under that section or b) 5%
if the ITR of 2 consecutive previous years even after the expiry of the due date of filing return u/s139 has not been filed. For e.g. u/s 194Q rate of TDS is 0.1% and if conditions of 206 AB are fulfilled, then the TDS rate applied would be 5%. The same treatment is done under section 206 CCA while collecting TCS. The rate of the collection is increased if the previous 2 years’ ITR has not been filed. These sections are applicable even when a person files a belated return. Suppose the bank deducts TDS on FD at 10%, then because of this section it will be deducted at 20% if the conditions of this section are met.
#13. ITR is required to apply for a Credit Card
Most banks, credit card companies consider the income disclosed in the ITR as a benchmark for fixing the credit limit of the credit card. ITR filing also has a weightage in the points of CIBIL score. Hence ITR helps in getting a credit card and also enables you to create a credit history for future larger loans.
#14. Used for immigration purposes
Visa authorities ask for copies of past income tax returns to ascertain the financial status of a person. They also want to know the regularity and habits of a person in obeying the law of the land. According to them, if a person, who does not care for the laws and progress of his own country then he would be a liability in their country. Hence to apply for a visa a tax return would be required to be filed. Embassies, especially those of the US, UK, Canada, etc. when processing your foreign visa application, are very particular about your tax compliance.
#15. Freelancers and independent professionals
Freelancers or self-employed people don’t have Form16. ITR is the only document they have to show for their income proof. Without this, they can face funding issues and transactional problems. Some policies of LIC also ask for income proof.
We have given you so many reasons to file your ITR. Hence we are also suggesting an online ITR filing course that will enable you to file your own ITR. It will remove your hesitancy and also make you self-sufficient in your decision-making regarding your financial matters. In these trying times, it will give you a new employment opportunity as well.