In India, an individual may file his or her Income Tax Return (ITR) either voluntarily or compulsorily. Filing of income tax return is mandatory, if annual income of an Individual exceeds minimum exemption threshold. In other cases, one may file his or her income tax return voluntarily.
Mandatory Filing of ITR
The Government of India notifies minimum exemption threshold limit every year. For Financial Year 2023-2024 (Assessment Year 2024-25), the government has prescribed two exemption limits- Rs. 2,50,000 under Old Tax Regime and Rs. 3,00,000 under New Tax Regime. It implies that an individual is required to file his or her income tax return, if his or her total income earned during the Financial Year 2023-24 (FY 2023-24) exceeds either Rs. 2,50,000 or Rs. 3,00,000. Further, New Tax Regime has been made a default option to file the ITR. But a tax payer has been given an option to choose the Old Tax Regime also. To understand the difference between the two tax regimes, check out our another article here. For the purpose of taxation, the financial year commences on April 1 of a calendar year and ends on March 31 of the next calendar year.
Voluntary Filing of ITR
In case, an individual's net income is less than the minimum exemption limit for a financial year, he or she may file his or her income tax return voluntarily.
Benefits of Filing ITR
Now question arises that if my net income does not exceed the threshold during a financial year, why should I file my income tax return voluntarily. To answer this query, I would say that filing of your income tax return not only makes you feel responsible and good about yourself, but it also brings several other benefits as indicated below.
Loan Approval
When individuals apply for a vehicle loan (2-wheeler or 4-wheeler) or a home loan, filing of their Income Tax Return can prove to be helpful. Generally, the Banks and NBFCs insist on providing copies of at least 2 year's ITR, before granting a loan of that type.
Filing Income Tax Return may increase the chances of getting a loan or credit card approved with favorable terms and conditions. Thus, it is imperative for individuals to file their ITR regularly and on time to ensure smooth financial transactions and to have a strong financial profile.
Tax Refund
On several occasions, tax is deducted from your income at source (called "TDS") or tax is collected at source (called "TCS"). While TDS is deducted when you earn income, TCS is collected when you spend. In certain circumstances, TDS is deducted by your employer. TDS is also deducted from the professional fees paid to you in certain cases. Moreover, when you buy an expensive car, the dealer also charges TCS from you along with the price of car. The TDS or TCS so deducted is then deposited with the income tax authority and linked to your PAN.
Subject to fulfilling the conditions prescribed in the Income Tax Act and Rules, you may claim the refund of TDS or TCS so deducted.
The first and foremost condition to claim tax refund is to file your income tax return within the due date notified for filing income tax return.
To receive your refund from the Income Tax Department at the earliest, it is advisable to file your Income Tax Return promptly. If you don't file your income tax return within the due date, you may loose entire TDS or TCS deducted as well as interest thereon. In such a case, interest or refund amount may not be paid back to you.
ITR as Income Proof
ITR or Income Tax Return serves as a crucial document for individuals as a proof of their income. It is accepted as valid income proof by financial institutions, such as banks, when individuals apply for loans or credit cards.
Processing of Visa to go Abroad
Of late, most embassies & consulates require visa aspirants to furnish copies of past 2 year's ITRs as proof of income. This is to ensure that the person applying for visa has financial bindings with India and he would return after expiry of visa. Thus, it is imperative for individuals to file their ITR regularly and on time to ensure smooth financial transactions and to have a strong financial profile.
Timeline for filing ITR
To avail the above benefits, it is essential to file your ITR within the prescribed due date.
Subject to certain conditions, the ITR filing due dates are different for individuals and business entities.
Generally, the due date of filing ITR for individual is July 31, which may or may not be extended by Income Tax Department.
Consequences of Late Filing
Non compliance of prescribed time limit has its own consequences, as described below:
Penalty
Failure to file your ITR when required may result in a penalty of minimum Rs. 1,000 to Rs. 5,000 on case to case basis. However, higher penalty can be imposed by the tax officer.
Other Consequences
Apart from the minimum penalty levied by the Income Tax Department, there are other consequences that a taxpayer may face for late filing of ITR.
It is crucial to understand that filing of ITR is not possible until the taxes have been paid. In case of delayed payment, an additional penalty will be imposed, which will commence from the day after the prescribed due date. Therefore, the longer an individual delays payment, the higher the penalty amount will be. It is important to note that interest payment on the tax due will also be levied, in addition to the late filing penalty.
Conclusion
To conclude, filing of income tax return is mandatory when your total income from all sources exceeds the exemption threshold prescribed for a particular financial year. In other cases, filing ITR is optional.
When you are liable to file ITR mandatorily, it is prudent to file the ITR within prescribed due date. Although you may also file your ITR after missing due date but belated filing of ITR makes you pay more in terms of tax, interest, late fees and penalty.
Irrespective of the whether the filing of ITR mandatory or not, filing of income tax return has its own benefits.
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Disclaimer: The views expressed in this article are personal views of the author, intended solely to provide general information and should not be taken as professional advice or substitute of professional advice. Before acting on the information given herein, please consult a qualified expert or professional for advice on specific issues.
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