Benefits of Filing Income Tax Return (ITR)

Introduction

Taxation is important and the largest source of income for Indian Government. The government uses the money collected from taxes for various projects for the nation’s development. The Indian tax system is well structured and has a three-tier federal structure.

Being one of the complex and typical tax structures, India has currently 11.98 Crores registered users on the income tax portal while more than 7.65 Crores income tax returns have been filed for the last assessment year i.e. AY 2023-24 till 31 October 2023 which is 11.7% higher as compared to the 6.85 Crore ITRs filed for AY 2022-23 till 7 November 2022, the due date for filing such ITRs in the preceding year. (Source: https://pib.gov.in/PressReleasePage.aspx?PRID=1973846).

The below image shows Statistics of ITR filing by salaried taxpayers and other non-audit cases as on 31 July 2023 which was 16.1% more than the total ITRs for AY 2022-23 filed till 31 July 2022.

(Source: https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1944821)

Filing income tax returns may be cumbersome, but its benefits countervail the momentary inconvenience.

As we can observe from the above numbers, almost half of the registered users have not filed their ITR.

The reason behind such difference in the statistics of the registered users and ITR filing is the mindset of the various investors who either have very low income or zero tax liability and skip their income tax return filing. Then, there are investors who do not file their returns for years and only when something urgent comes up which requires their last few years of ITR, they go to CA and file their old returns.

First of all, let’s discuss what Income Tax Return is.

Income Tax Return

The income tax return is a tax return form that an assessee has to submit to Income Tax Department. It contains information about the assessee’s income and taxes you have paid or need to pay in a FY. The income could be from any of the five heads of income i.e.

1. Salary
2. Profits and Gains from business and profession
3. House Property
4. Capital Gains
5. Other Sources

There are different forms to file ITR. You need to select one form based on the nature of your income and which type of taxpayer you are.

Who should file Income Tax Return?

As a responsible citizen of India, everyone having income should file an ITR, because in this way we are declaring all the sources of income whether taxable or non-taxable.

One can file ITR even if their income is below the taxable limit of Rs.250000 or zero (in such cases return filed is known as a Nil return). Filing nil returns will act as proof of accumulated funds in your bank accounts or other investments.

Is it necessary to file Income Tax Return?

ITR filing is not necessary for everyone however the filing of tax return depends on certain factors. Taxpayers need to decide whether they need to file ITR or not considering following factors:

• Income exceeding the exemption limit

• Every Company and firm (irrespective of their profit or loss)
• Owner of Foreign Assets- Individual being resident and ordinary resident of India:
  • Holds, as a beneficial owner or otherwise any asset (including financial interest in any entity located outside India) or;
  • Has signing authority in any account located outside India or ;
  • Is a beneficiary of any asset (including any financial interest in any entity) located outside India
• Electricity bill payment – A person who has incurred an expenditure aggregate of more than INR 1 lakh towards electricity consumption.
• Bank Deposits- A person who has deposited an aggregate amount of more than INR 1 crore in one or more current bank accounts.
• Overseas travel costs- A person who has incurred an aggregate expenditure of more than INR 2 lakh on foreign travel for self or any other person.

Benefits of ITR Filing

There are various benefits of filing ITR irrespective of their income. A few benefits of ITR filing are listed below:-

• Easy Loan Approval: While applying for loans, financial institutions ask for ITR receipts of the previous year/years. ITR Receipts act as supporting documents of the borrower’s income and assure the financial institutions about the borrower’s income stability. Therefore, ITR Filing can help you get easy loan approvals for car loans, personal loans, etc.
• Address and Income Proofs: ITR filings serve as income and address proof. Contrary to salaried taxpayers and taxpayers having withholding tax certificates, filing ITR is handy for the self-employed and does not have any income proof to produce.
• Claiming Tax Refund: One of the major benefits of filing ITR is that one can claim a tax refund. If you have made any investments in tax-saving instruments and have paid more tax, you are liable for a refund. This is highly beneficial for salaried and self-employed people falling in the high-income bracket.
• Quick Visa Processing: ITR receipts are vital for visa application processing. Embassies of countries like the United States of America ask for receipts to know more about individual tax compliances. ITR being the income proof of the applicant’s income, the embassy will check income details and the capability of the applicant whether he/she can take care of their travel expenses.
• Loss Compensation: Any company and business incurring losses at any time during a specific FY. To compensate for the losses companies file ITR. Sections 70 and 71 of the Income Tax Act, 1961 explain the provisions for carrying forwarding the losses of a particular year to subsequent years. This means you can move your loss from one year to the next assessment year.
• Avoid Penalties and Punishments: As discussed earlier, ITR filing is mandatory for some taxpayers. Timely filing of income tax returns saves taxpayers from huge fines and penalties. If one’s annual income is not more than Rs. 5 Lakhs, the Income Tax Department levies a fine of Rs.1000 otherwise Rs.5000.
• Eligibility Criteria for Government tenders: ITR filing is important for the people intending to file government tenders and undertake government projects. ITR is one of the eligibility criteria to apply for such tenders.
• Beneficial for People not falling under the tax bracket: ITR filing is not only beneficial for high-income bracket people, but it’s also important for the people having income within the exemption limit or nil tax liability. There are several benefits of filing NIL income tax returns. Some of them are:
  • ITR receipts serve as address and income proof.
  • Faster processing of Credit Card applications if one is filing NIL income tax returns.
• Benefits of ITR filing of Deceased Individuals: Filing ITR of deceased individuals who have passed away in the middle of a FY is also beneficial. Tax is calculated on income generated till their date of death. In such a case, their legal heir should file the ITR. This is important because insurance companies need income proof to sanction an amount for an accident during court trials. Therefore, by presenting the ITR receipts, one can easily obtain the claim amount. ITR also serves as a record of assets and liabilities of the deceased throughout their lifetime which can help in the cordial distribution of these assets among their legal heirs.

Consequences of Non-Filing of ITR

Now that we have discussed about the benefits of income tax return filing, let’s move ahead and know about the consequences one may face if he/she doesn’t file ITR.

• An income tax notice shall be issued to the person having income falling in the taxable slab.
• In cases of non-filing/delay in filing of ITR due to a genuine reason, the authorized body will accept a detailed letter along with supporting documents and provide the taxpayer a condonation relief.
• The Income Tax Department will levy fines on an individual for the delay in filing of the return of income. Generally, one has to bear a penalty of ₹5000 if his income is above ₹5 lakhs. If income is below this amount, the fine is ₹1000.
• The assessee may be subjected to tough imprisonment in cases of tax evasion.

Note: According to the Finance Minister’s announcement in the Union Budget 2021, senior citizens above 75 years can get full exemption from ITR filing.

With this comprehensive guide on the benefits of income tax return filing, make sure to file your income tax return timely and enjoy the above benefits.

Important Reminders

1. New tax regime as the default: For AY 2024-25 onwards, the new tax regime is the default option when filing your ITR. Make sure you understand the implications of both regimes before choosing.
2. Available ITR Forms: The Income Tax Department portal provides ITR Forms 1, 2, 4 & 6 for filing returns. Select the appropriate form based on your income sources and taxpayer category.
3. Updated Return for AY 2022-23: You can now file your updated return for AY 2022-23 (FY 2021-22) until 31 March 2025.