An Income Tax Return (ITR) is a form prescribed by tax authorities to report income and other pertinent tax information. This form is required to be filed annually for each financial year with pre-determined due date. The tax computed as per income tax law must be paid before filing of tax returns, otherwise interest and other penalties are attracted.
Income tax authority prescribes seven different types of forms applicable to various categories of tax payers such as individuals, partnership firms, companies, charitable trusts, association of persons like co-operative societies etc. Except for individuals, it is mandatory for all other categories of tax payers to file tax return, even if their income is nil.
An individual is required to file his tax returns if his gross total income before claiming any deductions and exemptions under Income Tax Act exceeds Rs 2.50 lakh. However, if the income is below taxable limits there is no obligation to file tax returns. Many individuals have very low income or small income from interest on bank deposits, company deposits, dividend on shares, family pension, tax-free agricultural income, income from sundry activities such as giving tuitions, tailoring, food catering, etc. These people’s total income may be below taxable limits and hence are not legally required to file tax return.
However, even if your income is below taxable limits with zero tax liability, there are various reasons why you should file your annual tax returns regularly. The ITR is a form prescribed by the tax department wherein tax payer is required to disclose his/her income from all the sources for the financial year and make applicable claim for various permissible exemptions and deductions and thereafter pay the tax due thereon at prescribed rates.
These returns are required to be filed before July 31 every year. Filing tax return is a documentary evidence of your annual income from different sources whether taxable or non-taxable. The tax return can be filed even if theincome is below taxable limits. The tax return can also be filed for a new born child after obtaining PAN number.
Following are the benefits of filing ITR in such cases:
ITR is a proof of accumulated earnings over the years.
It is possible that a housewife or a retiree may be earning a small income during her/his spare time as a hobby or to support the family from various activities like giving tuitions, conducting education programs, supplying food items, teaching music, dance, etc. Over the years the saving from these incomes results in substantial corpus and gets invested in different modes of investments such as bank fixed deposits, shares of companies, mutual funds, buying property etc and if they cross certain specified limits,you may get a notice from the tax department to explain the sources of these investments. If you have not filed the tax returns, it will be very lengthy and tedious process and hassle to explain the sources of earnings over the years. In such cases, the ITR will be a legal proof of income earned in each year.
If you wish to travel overseas for leisure or to meet your friends or relatives abroad,you are required to have Visa of the respective country.This is issued only when there is authentic proof of your income to support the expenditure of stay and for this, tax return of three consecutive years is a must. Having these tax returns already filed will facilitate easy travel.
Tax is deducted at Source (TDS) from interest on bank and company deposits if the income crosses certain specified limits. Though this can be avoided by giving declaration in form 15G/15H; very often it is neglected to furnish either by ignorance or otherwise. In such cases, filing ITR will help you to get the refund from the Income Tax Department.
If you wish to get a personal loan to finance purchase of car or house, the bankers invariably ask for the ITR as one of the documents to assess your repayment capacity.
One can carry forward capital losses
If you have incurred capital losses on sale of taxable capital assets such as properties, shares of companies, gold etc, the Income Tax Act allows you to carry forward the losses for 8 consecutive years and offset it against future gains and income. Losses for those particular years cannot be carried forward unless that year’s return is filed before the due date so even if it is loss return and you do not have any income to show, do file your return before the due date to declare the capital loss or income.
Proof of income for self employed
Very often documentary evidence of income is required to avail services from external agencies. Those who are self-employed especially in the unorganised sector do not have earning proof as in the case of salaried persons who have salary certificate. For these persons, ITR is a ready proof of income which can be produced to authorities to substantiate income earned by them.
Investments in certain products
Investment in products such as term insurance, etc require income proof to compute eligibility and limits. The ITR serves as an income proof to take benefit of such products. Also banks offer accounts with additional facilities and credit cards. The eligibility and limits for these products are also determined on the basis of the ITR filed by the applicant. If the person has not filed ITR, he may not be considered eligible for many of these products.
It is therefore advisable to keep your tax records up to date even after your income fall below taxable limits or create your tax file with income tax department even if income is small.