What is the purpose of an income tax return?

What is the purpose of an income tax return?

ITR is a tax return form used in India to disclose one's income and assets to the government's IT department. It comprises information regarding the personal and financial details of the taxpayers. ITRs are essentially a taxpayer's self-declaration of their earnings, assets, pending refunds, and taxes paid. While it is usually completed online, it is also possible for senior citizens to complete it manually.

Who is required to file a tax return?

An ITR is not required for everyone. Based on a number of factors, taxpayers can determine whether or not they need to file an ITR. The following are the elements:

An individual whose annual income exceeds the applicable taxable limit of 2.5 lakhs, 3 lakhs, or 5 lakhs.

An ITR must be filed by anyone who owns assets outside of India and earns income from them.

An individual who pays more than Rs. 1 lakh in power bills in a fiscal year is required to file an income tax return.

In a financial year, assessees who deposit more than 1 crore in one or more bank accounts must file an ITR.

If you spend more than $25,000 on international travel throughout the fiscal year, you must file an income tax return.

The Top Advantages of Electronically Filing Income Tax Returns on Time in India

Avoid Penalty

Individuals and corporations can save money by filing their ITRs on time. You may be charged a late fee of up to INR 5,000 if you file your ITR after the deadline. It is in addition to any other penalties that the Act may impose. In addition, you may be obliged to pay the penalty's interest.

Unintentional Claim

If you continue to file ITRs for yourself or your spouse, it will assist you in the event of an accident. Insurance companies demand proof of income to compute the amount of a claim, and if any returns are missing, particularly from the previous three years, the claim amount may be lowered or refused since the court views the ITR as the only evidence. 

Furthermore, if a person dies in an automobile accident after completing income tax returns on a regular basis for the previous three years, the government is required to pay the deceased person's relatives. Compensation might be up to three times the deceased person's typical annual salary.

Evidence of Net Worth

The most reliable proof of your net worth or income is an ITR. Form 16, which is supplied by their employer and acts as proof of income, is beneficial to the salaried class. The ITR filing form, on the other hand, can be used as proof of income for self-employed people. It gives a detailed breakdown of these people's income and expenses for each fiscal year.

It can be utilized for a variety of things, including obtaining loans, obtaining insurance coverage, purchasing real estate and other valuable assets, and so on. If you need to provide proof of your income or net worth, the ITR is your only option.

Receiving a Refund

You must file tax returns if a refund of TDS deducted earlier is pending; otherwise, you will have to forego the refund. Some taxpayers may decide to put their money into fixed deposit accounts. On such investments, tax is deducted at source (TDS), which is over 10%.

You can save money on taxes on income from savings vehicles like term deposits if you file an ITR. You can also save money on your dividend income by filing an ITR. While these instruments are subject to taxation, ITR refunds can be used to reduce the amount of tax owed.

In a loan application, eligibility is important

ITR filing on a regular basis reveals stable income and that the individual has been paying taxes on time. Financial institutions use the applicant's prior year ITRs to approve loans and other credit lines such as overdrafts, bank credit cards, cash credits, and bill discounting alternatives. If you are unable to provide any documentation, including an ITR, that the lender/bank deems required, your house loan application may be denied.

Losses can be carried forward

Taxpayers must file a tax return by the due date to claim specified losses that may occur as a result of capital gains, a business, or losses under the Income from House Property head. For example, if you make a profit on the sale of mutual funds or stock, you can offset it by filing tax returns on time and claiming losses from past years.

The basic conclusion is that if tax returns are not submitted on time, unadjusted losses (with limited exceptions) cannot be rolled over to following years. As a result, you'll need to file a tax return to ensure that your losses are carried over and adjusted in the future.


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