No.1 creating financial history
When you file your return every year with the income tax department, it is kept as a record with them. This shows that you have a source of income and you are financially stable. Mind you it’s not just a record. You can also take it as a supporting document when you wish to avail a loan.
Now you’ll have doubt how will it be of any use to avail a loan?
Let us take an example:
I file my return each year since I was 18, declaring my income from my internship while you have not filed any.
So when today at the age of 22 while I have just started working I want a loan for any reason. How do I prove that I have source of income?
It’s very simple. I’ll take my past income tax return filed any attach it with my current income proof. It will show bankers that I already have created a financial pool to support me. It will be an advantage for me compared to those non-filers of return.
No.2 claiming refund
Now it is not necessary that we all have taxable income after availing of all the benefits like insurance deduction, loan deduction etc. but my employer/banker had deducted tax (TDS) on my salary/interest income. How do I get back tax deducted by them even though I was not liable to pay any tax?
Answer to it is, file your return. Declare all your income and TDS details. If tax deducted is more than the tax you are liable to pay, you will get refund from the department.
No.3 Avoiding Penalty
Now let us talk how income tax department will deal if you don’t file your return.
Any person who does not file his return of income within the assessment year is liable to pay penalty of INR 5000. The amount may seem small but you know this record will always be maintained with the department. So it is not just for one year but even for the coming years you will be put in the bad books (defaulters list) of the department. Also there is interest payable.
No.4 Notice from department for non – filing
Now, you must be having doubt about how will the department come to know that I have not filed my return or levy penalty for non-filing?
Well the simple answer is PAN card. When your employer deducts your TDS they have to deduct, deposit and file the details of TDS with the department along with the PAN Number of person of whom TDS is being deducted. So even if you don’t file the return but your employer is giving details of your taxable income.
You declare it or not but the department already has your details.
No.5: Notice from department for Concealment of Income
We all have seen Hindi movies where there is income tax notice which is not delivered in time and the exaggerated consequences. Why does that happen?
They have not filed their return or filed but not paid the tax thereon. Income tax department can serve a notice if there is reason to believe that the assesse has concealed income or he was to file return but not filed. This is initiated by the department by serving a notice.