Importance of filing return of income.

As the tax season is just about to begin, we are starting off with the series of a regular update on taxation matters. We understand the complexities a layman have to face when it comes to computing and filing the return of income. But worry not we have got you covered so let's start with the very base of it all. Why do you need to file a return of income and is it important to file a return of income? 

So, that being said and that being done let's get started. 

1. Avoid IT Scrutiny or Tax Notices: 

One of the major reasons as to why we might end up with a notice from the income tax department is non-filing of our income tax return. So, in order to avoid such instances, one needs to file a proper income tax return with the department on a timely basis.

An individual whose gross income (before any deductions) is above the basic exemption limit (Rs.2,50,000 in case of Resident Individual below 60 years of age, Rs.3,00,000 in case of individuals over 60 years of age and Rs.5,00,000 in case of individuals over 80 years of age) is required to file his income tax return in due time.

Even if your employer has already deducted TDS from your salary you are required to file your income tax return on time to avoid notice from the department of Income tax.

If you are a resident and you own a foreign property (Including any financial interest in any entity located outside India) or are a signing authority to a foreign bank account then also you need to file your return on time even if your gross income is below the basic exemption limit.

If you don’t file your income tax returns for continuous years or for any particular year for any reason- it will not absolve you for getting your case selected for scrutiny and you are likely to receive a notice from the Income Tax Department and you need to properly file your return on time in order to avoid such events.

2. Avoid Fees/ Penalty: 

Where an assessee who is required to furnish a return of income, fails to do so within the prescribed time, he shall be liable to pay, by way of fee, a sum of-

a. Rs.5,000, if the return is furnished on or before the 31st day of December of the assessment year;

b. Rs.10,000 in any other case.

c. Rs.1,000, if taxable income is less than Rs.5 Lakhs

So, in order to avoid such payment of fee/penalty, one should file his income tax return within the prescribed time.

3. Build Financial Documentation:

Income tax return documents are proof of your sound financial standing, a steady income and also of your investments and these documents are very helpful while applying for a loan or a visa.

4. Carry Forward Your Losses: 

As per the provisions of the Income-tax Act, losses can be carried forward only if the income tax return is filed on or before the due date of filing of the return as specified u/s 139(1). The following losses are not allowed to be carried forward if the return is not furnished on time:

· Losses under the head “Profits and Gains of Business or Profession”

· Speculation losses

· Losses of specified businesses referred in section 35AD

· Losses under the head “Capital Gains”

· Losses from the activity of owning and maintaining race horses.

5. Tax Refund: 

If your employer has deducted excess TDS from your salary or your overall TDS deduction is more than your tax liability(e.g. TDS deducted by bank on FDs @ 10% while your tax slab is @5%, etc.) then by filing your return of income you can claim your Income tax refund on time.

6. Quick Visa Processing: 

While applying for a visa- be it tourist visa or a study visa for your children, income tax return documents play a vital role. The person filing regular income tax returns with proper details and on a timely basis is likely to get a visa without much of a hassle.

7. Easy to Rectify or Revise the Return: 

If any person has furnished his return and after filing, he discovers any omission or wrong statement therein, then he may furnish a revised return at any time before the end of the relevant Assessment Year or before completion of the assessment, whichever is earlier. 

Provided that an assessee can revise a return only if he filed his original return within the prescribed time.

Also Read: Tax changes suggested in Budget 2019