7 Reasons Why You Should File Your ITR

An Income Tax Return (ITR) is a form you submit to the Income Tax Department of India annually to file information regarding your income and taxes payable. 

Filing IT returns can be hectic, especially if you are new. As per income tax laws, this is mandatory for some and voluntary for others. Irrespective of the tax category you fall into, it is important to understand the benefits of filing your income tax returns. 

7 reasons to file your ITR on time

In this article, we will discuss seven reasons why you must file your ITR and what benefits you can get from filing ITR.

1. Helps with loan applications 

Regular ITR filing can increase your loan eligibility. The ITR is considered by banks and other financial institutions as evidence of income and financial stability. It is important to submit your ITR on time and correctly because any errors or non-filing can cause the rejection of loan applications. 

A submitted ITR, for instance, might be used as evidence of your ability to repay a loan if you want to apply for a home loan. Most lenders ask you to present ITRs for at least 2 years to process loan applications. This rule applies to both self-employed and salaried individuals.

2. Acts as income and address proof

ITR filings also serve as proof of income as well as addresses. For self-employed people who don't have income documentation, unlike employed people who receive regular wages and have tax withholding certificates, filing an ITR can act as proof of both income and address. 

The details furnished in ITR also act as proof of stable income. Also, several banks offer loans or credit facilities to self-employed individuals only if they can show IT returns, as it is a valuable income proof. 

3. Smooth visa application

Applying for a Visa in most countries requires proof of your financial capability. Your filed ITRs can help prove your stability. For countries with strict Visa guidelines, applying for the same without a filed ITR can lead to the dismissal of the application. For instance, if you plan to visit the USA, you must submit filed ITRs for the last three years as a part of the application process. Such a document can make the visa application process smoother and increase approval chances.

4. Avoiding penalties

Late filing or non-filing of ITR can result in penalties and interest. The IT department can charge you with a penalty and fines based on the severity of your offence. Additionally, interest will be added to the amount owed if you owe taxes and do not pay them by the deadline. Legal repercussions, including prosecution, jail, and asset confiscation, may result from failure to file an ITR. To avoid such situations, you must submit your ITR on time.

5. Carry forward losses

Regular ITR filing can enable taxpayers to carry over losses from one fiscal year to the following. Losses can be from business, profession, capital gains or house property. It can help to offset future revenues and capital gains, thus lowering the tax obligation. 

However, to carry losses forward, you must submit ITR by the deadline set by the Income Tax department. For instance, if you incur a loss of Rs.2 lakh in a financial year, that amount may be carried over to the following year and deducted from future profits.

6. Claiming refunds

The only way to get a refund of overpaid taxes is by filing an ITR. If a taxpayer's tax burden in India is less than the taxes he/she has already paid, or if they have invested in tax-saving plans like the Public Provident Fund (PPF), the National Pension Scheme (NPS), or Equity-Linked Savings Schemes (ELSS), he/she may be eligible for a refund. Once the refund amount is calculated during the process of ITR filing, it will be processed and transferred to the linked bank account. 

7. Responsibility towards nation

Every year, the Indian government uses the Union Budget announcement as a forum to discuss and impose requirements for everyone to file income taxes. Even if your income does not exceed the tax threshold, filing ITR demonstrates your responsibility as a citizen of the nation because your income and other personal data remain recorded. This annual activity is seen as a moral and social duty of every Indian citizen. 

Final word

Overall, there are several reasons why filing ITR can benefit you regarding proper financial planning. Filing the return timely and accurately increases your chances of getting tax benefits and establishes credible financial standing among different financial institutions and credit rating agencies. The Income Tax Department now allows you to file for ITR through an online portal, making the process easy and comfortable.