Why is it important to file tax returns?

A tax return is a form that is filed with a tax authority reporting income, expenses, and other tax information. They allow taxpayers to calculate their taxable income, plan their tax payments, and request refunds for overpayments.

The income tax return is used to report income and taxes to the Income Tax Department.

Individuals and businesses are required to file tax returns by a specific deadline. A taxpayer who fails to meet the deadline must pay the penalty.

Importance of Filing Tax Returns

Your capital losses and gains will be altered

If price and supply market speculation were the most crucial factors, having a handy record of the ITR at this point would be extremely beneficial. Furthermore, doing so guarantees that you will have bad luck for the next eight years in a row, depending on whether you recorded earnings for that fiscal year.

Your credit card company may check your repayment status

The IT department records regular tax returns, serving as standard income proof. This comes in handy when applying for a credit card or a loan (mortgage, education loan, car loan). Banks and other credit agencies will need to assess your financial situation, and the ITR is a reliable document.

Loans are simple to obtain if your tax returns have been appropriately filed

Income tax returns are important business documents that serve as proof of income because they show all your earnings for the year. In turn, NBFCs and other financial institutions actively require this document when disbursing loans.

Assistance in claiming deductions

States allow certain deductions to help ease taxpayers and encourage more people to pay their taxes.

These deductions and exemptions may be used on certain investments to reduce the amount of tax you ultimately pay. TDS and rebates can also be collected.

However, you must file an income tax return to claim these tax benefits. If you do not file a tax return, you cannot claim the deduction.

Losses can be transferred

Sections 70 and 71 of the Income Tax Act 1961 contain rules for carrying forward losses from one year to the next. This means that the loss can be deferred until the next appraisal year.

Useful if you are planning a trip abroad

There are a number of procedures that must be followed when traveling abroad. Not submitting an ITR can ruin your plans for international travel. The ITR form is one of the documents required by the country you visit.

Important loan application document

When you apply for a loan to buy something, the bank requires specific documents to be submitted for a car or a new home for an individual or business. An important document is your income certificate. Banks typically request ITRs for the previous three years. This is done to assess your past and current financial situation and determine if you can repay the loan.

ITR can help you get credit cards and bank loans.

Filing tax returns is required

Even if your income level is not subject to compulsory declaration, we recommend that you file a voluntary declaration. Most states require one to file tax returns for the past three years as evidence for real estate registration. Submitting a declaration will facilitate registration.

Different forms of Income Tax Returns

ITR-1 FORM

Individual taxpayers must complete ITR-1 Form.

Individuals who are not authorized to use this form include:

• Income from more than one residential property.
• Lottery or racehorse winnings.
• Profits/losses are reported under the heading “Capital Gains.”
• Agriculture income/exempt income over INR 5,000.
• Earnings from a business or profession.

ITR-2 FORM

This form may be used by an individual or a Hindu Undivided Family (HUF) if their total income does not include income from a proprietary business or profession or a partnership firm. This form is also useful for those who live outside of India. In most cases, an individual or a HUF can use this form to submit their IT Declaration.

ITR-3 FORM

This applies to natural persons who do not earn a living from the company’s operations.

People who earn money from the accompanying sources are eligible to file ITR-3:

• A component of a business or a particular profession.
• If they were interested in unlisted value shares at any time during the fiscal year.

ITR-4 FORM

This ITR form is useful for anyone who owns a business or works for a living. This form applies to all types of businesses, companies, and occupations, and no income restrictions exist. It is available to taxpayers who have chosen the income scheme under Sections 44AD, 44ADA, and 44AE of the Income Tax Act.

Form ITR-4 should only be filed if the taxpayer has the following incomes:

• Income from more than one residential property.
• Lottery or racehorse winnings
• Income is classified as “Capital Gains.”
• Section 115BBDA income is taxable.

Conclusion

Income tax return filing is an important legal obligation for taxpayers. It is important that the taxpayer reports income and assets to his/her ITR and pays all applicable taxes on time.

Filing income tax provides many financial and non-financial benefits. It is also the social responsibility of every taxpayer to facilitate access to credit, avoid interest and penalties, claim tax refunds, hassle-free visa processing, and many more.

Filing tax returns is a periodic exertion that’s considered a moral and social duty of every responsible citizen of the country. It offers a base for governments to determine the quantum and nature of expenditure by their citizens. Moreover, it forms the base of assessments on which to apply for compensation and other remedies from time to time.

You can read more about income tax returns, investment strategy, and other parameters from Piramal Finance’s personal loan page https://www.piramalfinance.com/personal-loan to have deep dive into finances.