By Lal Singh ITR is something you need to file if your income exceeds a certain limit under the tax regime, and currency, in India, that threshold is Rs. 5 lakh. But let’s say, you recently got to know about taxation and now you’re curious about why you should file ITR, like what are the benefits of doing so, and what could go wrong if you don’t. If that’s the case, just keep on reading these possible Income Tax Return (ITR) Filing Advantages and Disadvantages. Here we go.
Advantages of Filing Your ITR
1. You Stay Compliant With the Law
It is really important that you file your income tax returns; it is absolutely required by the law. The government expects to pay a share of the revenue you earn once you earn income. This is exactly the duty performed by the ITR; it tells the government how much you have earned over a specific period of time. The process of ITR also helps you to be a responsible citizen towards the nation as it ensures that everyone contributes his or her fair share toward the functioning of the government. If you don’t, well, a penalty of between Rs 5,000 to 10,000 can be charged depending on the level of your income as defined in the tax guidelines.
2. Possible Refunds
With an employer, there may be times when taxes such as the Tax Deduction at Source (TDS) are deducted excessively than they are supposed to be. In such a case, it is possible to file an Income Tax Return (ITR) and get the excess amount refunded back to the taxpayer with interest. It is pertinent to note that the refund of money paid in excess is only possible if an ITR is filed and that the process must be followed properly for the desired results.
3. Helps You Get Loans and Credit
The Income Tax Return ITR is a task that one has to fulfill for filing income tax returns regularly, which makes an individual basis very much preferred by banks and lenders. To put it in the simplest words possible, well, having filed income tax returns for many years, it would work in favor of the individual while applying for a housing loan, a vehicle loan, or even applying for a credit card.
4. Acts as Proof of Income and Address
Your Income Tax Return (ITR) is capable of being employed as documentary evidence of your earnings as well as where you live for many different reasons, including applying for an Aadhaar card, establishing a new bank account, or making a purchase of expensive items. In the event of making major financial transactions (such as a residential property worth more than ₹50 lakh), the delivery of your ITR as documentation on your earnings will be of utmost relevance. So that’s that.
5. Important for Visa Applications
When applying for visas, embassies usually need your last 2-3 years’ ITR records. These records help to prove that you possess a steadily flowing source of income and that you are a person who pays taxes on a regular basis. In addition, having ITR ready shows that you are properly prepared and organized and do not need any more paperwork to support your income, which is not on the cards anymore.
6. Carry Forward Losses
In the context of taxation, it is crucial to remember that in reality, suffering from business losses, capital losses, and any other losses may not always translate to instant tax benefits. However, it is possible to minimize adverse taxes in the future by following legal rules that provide carry forward of losses. Carrying forward losses involves transferring such losses from a given assessment year to the next year in the determination of taxable income or profits for tax purposes.
Disadvantages of Filing Your ITR
1. It Can Be Complicated
Filing your income tax returns in India can be an overwhelming process, with so many forms to choose from, such as ITR-1, ITR-2, ITR-3, and so on-that it can feel impossible to know which one is most suitable for your needs. Given that Indian taxes are an intricate matter, a newcomer may find it difficult to comprehend the regulations surrounding filing and the right forms to use according to their income.
2. Collecting Documents Takes Time
Several documents, such as Form 16, bank statements, investment proofs, TDS certificates, etc., are needed to file your ITR. The absence of just one document will probably cause a delay in your filing.
3. Website Glitches
The days approaching the tax deadline are often when taxpayers try to submit their income tax returns online, but they face numerous annoyances from the Income Tax Department’s official site constantly crashes or slows down due to a bottleneck created by the excess traffic load. And there is not much you can do about it.
4. Mistakes Can Be Costly
When dealing with your tax matters, it is crucial to ensure the timely and accurate submission of the Income Tax Returns (ITR) so as to avoid further complications down the road, such as penalties (which can range from as little as ₹5,000 to as high as ₹10,000).
5. Risk of Scrutiny
In some cases, the Income Tax Department may randomly decide to pick income tax returns for examination and verification purposes, an activity which could be an enlightening as well as a traumatic experience for some taxpayers out there.
6. Hiring Experts Costs Money
If we consider the issue of complex finances, or if our taxes and accounting need to be handled expertly, it is advisable to consult or to hire the services of a Chartered Accountant or a tax expert. And that sure is costly most of the time.
7. Penalties for Late Filing
Filing your ITR after the deadline means losing several benefits:
- You can’t carry forward your losses.
- You might not be able to choose the new tax regime.
- Refunds, if any, will be delayed.
- Higher chances of receiving notices from the tax department.
Conclusion
Now do you get why filing ITR can work in your favor and what challenges there may be if you go down this path? Well, certainly, if your income is taxable, you should not be avoiding filing ITR, or else it’ll be a big headache down the line.