As per the rules of the Income Tax Act, 1961, individuals who earn an income are required to pay an income tax on such income. There are income tax slab rates which specify the amount of tax payable at different income levels. As per the slab, incomes up to INR 2.5 lakhs do not attract any tax liability. As such, you are not required to file an income tax return if your income is below INR 2.5 lakhs. However, if your income is above INR 2.5 lakhs, filing of income tax returns becomes mandatory even if your tax liability is nil.
Though filing of income tax returns is mandatory for individuals earning more than INR 2.5 lakh in a financial year, it proves beneficial even for those whose income is below the taxable limit. Having an income tax return filed in your name offers you various benefits. Some of these benefits are as follows –
1. Ease of assessing the claim amount in case of accidental deaths
If an individual dies in an accident where he/she was not at fault, the individual’s family gets compensation for such accidental death. In these cases, for calculation of the amount of compensation payable, the ITR proves helpful. The claims tribunal for motor accident cases uses the ITR to establish the proof of income for self-employed individuals as approved by the Delhi High Court. The main idea for this practice is to establish the income of the deceased so that the financial loss suffered by the family can be estimated and the compensation amount can be determined.
2. Proof of income or address
When you do any transaction which requires a proof of income and/or a proof of address, the ITR can be used as a valid proof.
3. Ease of availing a loan
Whenever you want to avail a loan for your financial needs, the lender would insist on your income tax return to assess your income in the past years. The ITR helps the lender to assess whether you would be able to repay the loan or not. It serves as proof of income and helps the lender match your income level to the income criterion for the loan.
4. Ease of availing a Visa
When you are looking to apply for a Visa for visiting an international country, your ITR might be needed by the embassy of the country to complete the documentation for the Visa. Countries like the UK, USA and Canada usually insist on the submission of the visitor’s ITR before a Visa is granted.
5. Helpful when buying insurance
When you buy a life insurance policy of a very large sum assured, the insurance company does thorough financial underwriting to ensure that you are not buying the policy for any unlawful intentions. Your income level and financial standing are judged by the insurance company before granting you a policy with a high sum assured and for this judgement your ITR is needed.
6. Allows you to carry forward your losses
If you have suffered a business/capital loss etc, the Income Tax Act, 1961, allows you to carry forward the loss to another financial year and claim setoff later on. This carry forward of losses would be allowed only if you file an ITR.
7. Avail refund
If TDS has been deducted on an income or if TCS has been collected on any expenditure of a taxpayer then filing an ITR is a prerequisite for getting credit of the tax which has been deducted or collected. By filing an ITR, a taxpayer can claim the refund of the tax deducted if applicable.
8. Needed for start-ups funding
If you are establishing a start-up and need funds from investors your ITR would be an important document to attract funding. Lenders prefer finance to individuals who have filed their returns and can show the filed returns as proofs of income.
9. Ease of availing credit cards
Many credit cards have an income criterion wherein individuals are required to have a minimum income to apply for the card. This income is verified by the income tax return of the applicant. That is why, when you apply for a credit card, you have to furnish your ITR to the credit card issuer to get the card. In the absence of the ITR, your credit card application might get rejected
10. Curbing of black money
The problem of black money and money laundering is widely prevalent and your income might come under the scanner of the income tax department if it is unaccounted for. When you file an income tax return you furnish a detailed account of your income. This would prevent your money from being labelled as black money and you can use your money without any fear.
11. Beneficial for freelancers and independent professionals
Freelancers and professionals who have an independent service don’t get Form 16 stating their income details. The ITR, therefore, becomes the only proof showing their incomes. If such individuals do not file their income tax returns, they might face problems when arranging funds for their business as lenders insist on income proofs before lending.
12. Promotes the nation’s growth
When you file your income tax return you become a responsible tax-paying citizen of the country. As the number of taxpayers increases, the Government can earn more revenue from tax. This would increase the growth of the economy and help the nation to grow.
Filing income tax returns has been simplified with the presence of the online mode. Moreover, in her latest budget Mrs. Sitharaman has also proposed the introduction of a taxpayer’s charter to simplify tax rules. So, file income tax return even if your income is below the taxable limit and enjoy the above-mentioned benefits.
CA Abhishek Soni
Abhishek Soni is a Chartered Accountant by profession & entrepreneur by passion. He is the co-founder & CEO of Tax2Win.in. Tax2win is amongst the top 25 emerging startups of Asia and authorized ERI by the Income Tax Department. In the past, he worked in EY and comes with wide industry experience from telecom, retail to manufacturing to entertainment where he has handled various national and international assignments.
Also Read – Who Is Required To File Income Tax Return?