Benefits of Filing Income Tax Returns on Time for Financial Year 2022-23

What is an ITR?

In India, people use a form called ITR to tell the government how much money they earned and what they own. This form has information about their personal and financial details. It is like a report card where people declare how much tax they owe and how much refund they can get. Usually, people fill out this form on a computer, but some older people can also do it by hand.

Who needs to file an ITR?

1. People who earn more than the limit set by the government (2.5 Lakhs/3 Lakhs/5 Lakhs) have to file an income tax return.

2. If they have assets in other countries that earn them money, they have to file a tax return too.

3. If someone pays more than Rs. 1 lakh on their electricity bill in a year, they also have to file an income tax return.

4. People who deposit more than Rs. 1 crore in one or more bank accounts in a year need to file an income tax return.

5. If someone spends more than Rs. 2 lakhs on overseas travel in a year, they also need to file an income tax return.

6. If an individual’s gross total income exceeds the exemption limit before claiming tax exemption on capital gains under sections 54, 54B, 54D, 54EC, 54F, 54G, 54GA or 54GB of the Income-tax Act.

7. If a business has made sales or earned income of more than Rs 60 lakh during the financial year,

8. if a professional earns more than Rs 10 lakh during the year.

9. If someone has paid or collected more than Rs 25,000 in tax deducted at source (TDS) or tax collected at source (TCS) during the year. For senior citizens, this limit is Rs 50,000.

10. Finally, if someone has deposited Rs 50 lakh or more in one or more savings bank accounts during the year.

Timeline for filing ITR in FY 2022-23

Why you should file ITR on time?

1. Avoid Penalties and Interest – It’s important to file your income tax return on time to avoid paying fines and interest. In India, if you don’t file your tax return by the deadline, you’ll have to pay a penalty of Rs 5,000. If you continue to delay, the fine could go up to Rs 10,000. If you owe any taxes and don’t pay them by the deadline, you’ll also have to pay interest on the amount you still owe. But if you file your tax return on time, you can avoid these fines and interest fees.

2. Claim Refunds – Filing your income tax returns on time can help you claim refunds, like when you open a new savings or PPF account or when you pay more tax than you needed to. But to be eligible for these refunds, you must file your tax returns on time. Missing the deadline could cause you to miss out on your refund.

If you invest in fixed deposits, about 10% of tax is deducted at the source (TDS). However, if you file an ITR, you can save money on taxes for income from savings vehicles like term deposits. You can also save money on your dividend income by submitting an ITR. Although these instruments are taxed, ITR refunds can be used to offset the tax liability.

Even if your total gross income from various sources exceeds Rs 250,000/Rs 3,00,000/ Rs 5,00,000, investing in a way that reduces your net income to less than Rs 250,000/Rs 3,00,000/ Rs 5,00,000 in a year can still help you benefit from tax refunds and reclaim the money that was deducted at the source.

3. Improve your credit score – Filing your income tax returns on time can help you improve your financial history, which in turn can boost your credit scores. This is important when you apply for loans, credit cards, and other financial products from banks. By filing your income tax on time, you show lenders that you are a responsible borrower who pays their taxes promptly. This can help you build trust with lenders and increase your chances of getting approved for loans or other financial products.

4. Avoid scrutiny – Submitting your income tax returns on time can help you avoid audits from the Income Tax Department. If you file your tax returns after the deadline, you are more likely to be selected for a review by the department. However, by filing your tax returns on time, you can avoid the stressful and time-consuming process of scrutiny.

5. Set off & carry forward of losses – To claim losses resulting from capital gains, Business or income from house property, taxpayers must file their tax returns on the due date. For example, if you have made a profit on the sale of mutual funds or stocks, you can offset it with losses from previous years by filing your tax returns on time. However, if tax returns are not filed on time, unadjusted losses (with some exceptions) cannot be carried forward to subsequent years. Therefore, filing a tax return is necessary to ensure that the losses are carried forward and adjusted in the future.

6. Startups – If you plan to fund your startup, financial institutions may require you to show your income tax returns from the past few years. They will analyze your business’s scalability, profitability, and other cost parameters from your income tax return to ensure that their investment is secure. This also serves as proof that you are a responsible taxpayer.

7. Preventing Black Money – The government has taken steps to prevent black money and limit money outflows from India. One of these steps was to make it mandatory for taxpayers to disclose their foreign assets in their annual tax returns. Even if you don’t have foreign assets, filing your tax return on time ensures that your savings are not considered black money by the IT department, as any unreported income is seen as black money.

8. Visa Application– When applying for a visa, most countries require you to submit your income tax return as one of the documents. This provides the visa processing officials with information about your current financial situation and income. The embassy will review your income and confirm that you are financially capable of covering the expenses during your visit. Several foreign consulates request the last three years’ income tax returns or the current year’s income tax return. Failure to provide any return may reduce your chances of obtaining a visa, especially if you are applying for a visitor, investor, or work permit. This is mandatory if you plan to travel to countries like the United States, the United Kingdom, Canada, Europe, and South East Asia.

9. Fetching Govt Tenders– Contractors who aim to procure large projects in their field of business must ensure that they file their tax returns on time and accurately. Failure to do so can result in serious consequences that can be harmful to their business. It is especially crucial for contractors seeking government tenders, as these tenders are subject to scrutiny, and the tender committee may examine the contractor’s ITR from the last five to seven years. Therefore, it is necessary for contractors to ensure that their tax returns are filed accurately and audited, if required.

10. Buying High Cover Insurance– Nowadays, it has become common to buy life insurance policies worth Rs 50 lakh or Rs 1 crore. If you purchase a term policy with a total insured amount of Rs 50 lakh or more, life insurance companies, especially LIC, may ask for your income tax return receipts. This is because the insured amount of a term policy is based on various factors, including the income of the policyholder.

Conclusion- In conclusion, filing your income tax return on time comes with various benefits. It not only helps you to avoid penalties and interest charges but also helps to build your financial history, improve your credit score, and increases your chances of obtaining loans and credit cards. Additionally, filing your tax returns on time can prevent scrutiny and audits by the Income Tax Department and enable you to claim specified losses. It also serves as a verification of being a responsible tax-paying citizen, which is crucial when applying for visas or government tenders. Moreover, timely filing of ITR receipts is becoming increasingly important for obtaining life insurance policies. Therefore, it is crucial to file your income tax return on time, accurately, and audited (if necessary) to avoid any adverse consequences and avail of these benefits.