As the tax season is upon us, we are often plagued with questions as to the importance of filing one's income tax returns (ITR). While it is undoubtedly a tiresome process involving the computation of taxes, the filing of applicable forms, and finally, filing the income tax return with the relevant authority, it is essential for more reasons than one. In this article, we shall delve into the various uses of filing ITRs.
It is to be noted ITR is a tax return serving as a self-declaration by a taxpayer wherein they provide details pertaining to their income, assets, liabilities and losses to compute the taxes applicable to them. Under the Income Tax Act, 1961 (IT Act), every person, whether real or legal, is mandated to file their ITRs if they fall under the purview as specified under the provisions of the IT Act. In particular, the following are considered to fall under the purview of the IT Act:
In light of the above, it is evident that the IT Act mandates the filing of ITR for the aforementioned taxpayers. Therefore, the taxpayers, upon such filing, can avail the following benefits:
Since the regular filing of ITR proves steady income, it acts as an indication of one's financial feasibility while granting credit. Therefore, financial institutions seek one's ITR filing records in order to ensure that the person they are disbursing a credit amount to has the ability to pay it back. Furthermore, it is to be noted that ITR filings play a vital role in determining one's credit history vide their Credit Information Bureau Limited score (CIBIL).
On account of being proof of a person's steady income, ITR filings are often required to be submitted while applying for visas to visit foreign nations whether for work, travel or educational purposes.
While salaried individuals have tax certificates and salary slips to prove their income, for self-employed or professionals, ITR filings can be used to provide proof of their income, wherever necessary.
ITR filings often mandate the filing of a tax amount that may exceed one's tax liability; therefore, to claim the excessively paid tax at a later date, it is essential to file ITRs and present the same before the applicable authority to claim refunds due.
In case a person engages in any high-value or foreign transactions, especially in case of the sale or transfer of assets, the individual is required to furnish a tax clearance certificate under Section 281 of the IT Act. In order to claim this certificate, filing one's ITR is mandated under the IT Act.
In certain instances, in order to file an application for a tender published by the government, the government mandates the filing of one's previous years' ITRs in order to be eligible to apply for such tenders.
ITR filings offer a comprehensive view of one's income earned throughout the years and its sources. Such details can be highly useful when one engages in high-value transactions, especially transactions related to property purchases, investments, etc.
In conclusion, the process of filing income tax returns (ITRs) carries significant benefits for taxpayers. By complying with this legal requirement, individuals and entities gain access to loan and credit facilities from banking institutions due to the evidence of steady income that ITR filings provide. Moreover, ITRs play a crucial role in visa processing for overseas travel, study, or work, as they serve as proof of financial stability. Additionally, ITR filings offer proof of income and address for self-employed individuals, facilitate tax refund claims, enable the acquisition of tax clearance certificates, provide eligibility for government tenders, and further provide comprehensive records of accumulated income for high-value transactions.