Business & Finance

Importance of filing ITR

Author: Rajat, CA

When is ITR (Income Tax Return) filing mandatory?

As per income tax laws, filing of ITR is mandatory when your income doesn’t exceed the maximum amount not chargeable to tax i.e. if your income is upto Rs. 2,50,000, you don’t need to file the ITR. Also, from 2021 a new requirement has come up under Income tax laws which mandate filing of ITR in below 3 cases:

  • When your electricity bill during the year exceed Rs, 1,00,000
  • When you incur expenditure of exceeding Rs. 2,00,000 on foreign travel during an year
  • When you deposit in current account an amount of exceeding Rs. 1 crore during an year

What is the Importance of filing ITR?

ITR filing is very much important especially if you want to avoid tax notice. Let’s discuss the major benefits of ITR filing: 

Avoid Penalties

As per tax laws, penalty of Rs. 10,000 is levied under section 234F on individuals who are required to file the ITR, but they don’t file. Even though the penalty has been kept at Rs 1,000 if your annual income is not more than Rs 5 lakh, as a law-abiding citizen, it is your duty to file your tax returns.

Cash Transactions

It is often seen that people in India are more involved in cash transactions. They transfer the money in various bank accounts and receive. This can be dangerous if you don’t file your ITR because government may ask you the source of such funds which you have transferred or receive. So, if you have filed the ITR of the same amount for which you have transferred/received during the year than you will be protected from income tax query.

Eligibility for getting finance

If you are a regular ITR filer than it is beneficial for you. When you go to any bank or financial institution for getting finance/loan, first thing they will ask you is your ITR for last 2-3 years. Same is the case for credit card also. So, if you don’t have ITR to show than you will not be eligible for any loan or assistance.

Set off losses in the next financial year

Sometimes it happens that you have a business or into share market trading and you may incur losses – and there is no tax on losses. However, during future years you earn high profits and must pay more taxes accordingly. But you can set off your previous losses with the future year profits and save your tax bill. 

However as per tax laws, ITR filing is mandatory if you want to set off your previous losses with future profits. So, if you don’t file your ITR than you can’t take the benefit of losses.

Processing of tax refunds

Sometimes, TDS is deducted from your income which is not chargeable to tax also. For e.g. bank deduct the TDS from interest on FD when your FD matures. However, your total income doesn’t exceed Rs. 5,00,000 during the year and don’t have any tax liability. Then you want t get back your TDS already deducted. 

This is possible only if your file your income tax return. So, you must file the ITR to get your refunds. 

Leave a Reply

%d bloggers like this: