There’s a lot of confusion, especially among those whose income falls below Rs 2.5 lakh per year, about whether there they need to file an ITR or not. Here are the benefits of filing returns.
When it comes to filing their tax returns, many people procrastinate. Some delay it, some don’t file their returns until they are pushed to as a necessity for taking a loan. They show little urgency towards filing their returns as the Income Tax Department does not send an immediate notice to individuals for missed deadlines. Also Read: What is the last date of filing Income Tax Returns 2018?
Many taxpayers are oblivious to the benefits they miss out on, and the consequences that follow, if they don’t file their returns. There’s a lot of confusion – especially among those whose income falls below Rs 2.5 lakh per year – about whether there they need to file an ITR or not.
Is it mandatory to file ITR?
There is a misconception that people without taxable income do not need to file their tax returns. The Income Tax Department mandates the filing of an ITR if your gross total income exceeds Rs.2.5 lakh before any deductions, exceeds Rs.3 lakh for those above the age of 60, or Rs.5 lakh for those above the age of 80 years.
Also, if you are an Indian resident and have assets or investments outside the country, it is mandatory for you to file returns even if your income is not taxable. If you don’t fall in any of these categories, it’s not mandatory for you to file an ITR.
However, even if you have zero tax liability, filing tax returns has an array of advantages:
Claiming tax refund
Even if your income is under the taxable limit, you may have paid taxes on it. An individual can file refunds to get this excess tax paid via TDS, or self-assessment, in the relevant financial year. Getting a refund of your taxes feels like getting a paycheck credited. If you don’t file your returns, you essentially let go of a possible refund.
Getting a visa
If you are planning to immigrate to another country or seeking a job opportunity abroad, you must have your ITRs for the recent years ready. Most embassies, especially the US and UK, ask for copies of ITRs to process your visa application.
Credit Card Processing: Banks can reject your credit card application if you haven’t filed your ITR.
Insurance policy with a higher cover: To buy an insurance policy, If insurance companies have reasons (non-compliance) to believe that you are a tax-evader, they will not give you policies with more cover.
Ease in applying for a loan
If you apply for any loan such as a home loan, car loan etc. or even take a credit card, you are required to provide the ITR for the most recent assessment years – along with other documents – to the lender. The ITR acts as a statement of your income. It helps the lender assess your repayment capacity.
In the absence of an ITR, taking a loan becomes very difficult. In the absence of an ITR, you will be required to prove your earning, and repayment capacity, through other means. You may even be asked to bring a loan co-applicant, submit a collateral, or ensure security in other ways, to cover the repayment risk.
Carrying forward capital losses
If you have incurred capital losses, the Income Tax Act allows you to carry forward losses for eight consecutive years, and offset it against future gains and income. However, you need to have filed an ITR every year whether your income is not taxable, without any break, to avail of this benefit. So it’s mandatory for you to file for return in the year you have incurred losses to carry them forward.
For other incomes
Even if your salary does not fall in any of the tax brackets, you may have other incomes such as income from tax-free bonds, or other non-taxable sources, which amount over Rs. 2.5 lakh. You should file an ITR showing your non-taxable earnings, which could act as a proof for income.