July is here, and with the due date for filing of returns is drawing to a close, it gets extremely important to know that return filing is not just complying with the law in force, but also benefiting you in the process.
July is here, and with the due date for filing of returns is drawing to a close, it gets extremely important to know that return filing is not just complying with the law in force, but also benefiting you in the process. Filing of returns within the due date i.e. 31st July is a healthy practice in the sense that it gives you sufficient time to accumulate resources and documents to file returns properly, fetch you quicker refunds from the department, avoid any payments in the form of interest and penalty and allow you to revise returns/rectify returns if required.
For startups and new-businesses, return filing becomes more crucial since losses incurred in the initial phases of business can later be carried forward and set-off against income in the later periods, thus reducing tax liability.
1. Rush in the last hour may cause mistakes: Gathering the necessary records, spreadsheets, and forms to properly file your taxes can take longer than you think, especially if you're not working on a real time basis. By getting the process of filing done before the due date, you're less likely to make irreparable mistakes, such as forgetting to claim an allowable expense, because you won't be rushed. Leaving you with extra time to review your tax filing for errors is always advisable, since prevention is always better than cure.
2. Carry forward benefit of initial Losses of Business: Start-ups generally are of the notion that since the initial years does not bring in the break-even, hence it’s not required to file returns. But these periods of losses can actually be utilized to benefit the start-up organization. Filing of returns in the loss making periods will allow the start-up to carry forward the losses to subsequent periods of profits, and can be set-off against such profits to reduce tax liability.
3. Receive your refund faster: Obviously, if you file your return early, your tax returns would get processed early resulting in timely refunds. Furthermore, if you are eligible to income tax refunds and you do not file returns, income tax department would not process your refunds, even if it is accruing to you. It’s only by filing returns that you can intimate the department to credit the refund in your bank account.
4. Revising Returns: Filing early gives you the grace period that can be a huge help in certain situations. If you file early and later identify an error, you still have time to amend your return before the deadline. Realizing that you made a mistake on your return after 31st July will not allow you to revise it once again. It’s usual to skip certain facts and figures while filing returns, but then you must get the second chance, and so to speak, the third chance as well. But once 31st July passes by and you file your returns thereafter, you belong to the odd-man-out league.
5. Avoid avoidable cash outflows: When you are just restructuring your finances, there is nothing worse than an unexpected mail from the IT Department requiring you to pay interest and penalty. Therefore, if you think you may owe a significant amount this year, you'll be better able to set aside the needed funds to pay the taxes by filing early. In turn, this will help you avoid penalties and interest from making a late payment or not being able to pay in full on time. To keep things simple, just because you file early doesn't mean you have to pay early.
Breaking the rules and complying with it after being pointed at by the Income Tax authorities always leads to down trending effects on either ends. Since all of us pay taxes either out of salary income, business income, capital gains, income from house property or income from other sources and all of us takes adverse steps if such income is not earned within the prescribed time promised by the payer, so does it happens with the revenue authorities.
Please note that, for companies and businesses required to get their books of accounts audited under the Income Tax Act, the due date is 30th September 2012.
Alok Patnia is the founder of Taxmantra.com, an online provider of individual taxation, business incorporation & maintenance services.