Filing of income tax return (‘ITR’) is a mandatory activity for individuals whose total income in a year is in excess of basic exemption limit of Rs. 2.5 lakhs. That said, filing an income tax return just because it is mandated by law shouldn’t be the only reason though. As a matter of fact, there are many reasons why you should do it. Wondering what they are? Continue reading to find out.
5 Benefits of filing Income Tax Returns you may not be Aware of
Did you know that there are many benefits of filing ITR? Yes, you read that right. Let’s take a look at 5 of them.
1. Refund of Excess Tax Paid
Now, there may be situations where the amount of tax that you paid in a year turns out to be in excess of what you owe to the income tax authorities. And when the amount of tax paid is more than your tax liability, you can claim a refund of the excess tax.
However, in order to do that, you would have to file your ITR within the due date, as applicable. It is not possible to get back the excess tax paid to the authorities without filing your ITR. And so, that is one benefit that you get to enjoy.
2. Reduction of Tax Liability
Another one of the benefits of filing your ITR is that you get to reduce your tax liability. The Income Tax Act, 1961 (the Act) allows you to claim several expenses as deductions from your total taxable income, which may reduce the amount of tax that you are required to pay, considerably.
Section 80C of the act, for instance, allows you to claim certain investments as deductions to the tune of Rs. 1.5 lakhs each year. Again, as iterated in the previous point, filing of the ITR is mandatory if you wish to claim such deductions.
3. Overseas Visa
Some countries, especially western nations like the United Kingdom, the U.S.A., and Canada, don’t process your visa unless you’ve filed your income tax returns. Since your ITR is basically a statement of the income that you make during a year, it gives them a way to assess your income and your capacity to meet all of the expenses associated with your trip. So, if you’re planning to take a vacation in the future, make sure that you file your ITR on time every year.
4. Loans and Credit Facilities
Many banks and financial institutions now require you to produce your tax returns as a proof of your income, to avail a loan or a credit facility. In case of big-ticket loans, financial institutions may even ask you to produce the copy of your ITRs for the previous three years.
This is especially true in the case of self-employed individuals since the ITR is considered to be irrefutable evidence of your income. Therefore, if you’re planning to avail a credit facility, ensure that you start filing ITR diligently.
5. Set Off and Carry Forward of Losses
And finally, unless you file your ITR on time, you will not be allowed to carry forward any losses over to the next year. And by extension, you also won’t be able to set them off against any subsequent profits that you may make, requiring you to pay full tax on the profits.
For instance, if you have any capital losses as a result of stock trading, you can carry them over to the next year and set them off against profits that you make during that year. This way, you can reduce your tax liability. However, this option is subject to the provisions contained in the Income Tax Act 1961 and is only made available to you if you’ve filed your ITR within the due date.
And there you have it. 5 key benefits of filing ITRs. Now that you’re aware of the advantages that you get to enjoy by filing your income tax returns, go ahead and ensure to file them well within the due dates. That said, before you start filing your ITR, make sure to use an Income Tax Calculator. This way, you can not only be sure of the amount of tax that you need to pay, but also be in a better position to plan your taxes.