ITR filing 2023-24: Filing income tax returns has many benefits

Another clarification is needed to define whether profits made by AIFs are considered as capital gains or business income, say experts.

While filing one’s income tax return (ITR) is mandatory,  those whose income is below the basic exemption limit have the option not to file. But even in such cases, there are enough  reasons  for filing your return. Let's find out what those are.

Claiming tax refunds

In most cases, tax is deducted at source (TDS) from payments such as salary, commissions, fees, and interest, per a stipulated rate. “There could be situations where excess taxes have been deducted for an individual, or the individual has overpaid taxes. Such excess taxes can be claimed as refund only by filing an income tax return,” said Rama Karmakar, Tax Partner, EY India.

Carry forward losses

When you incur losses in a financial year, that can be adjusted against gains. However, there may be instances when your gains in a particular year are not enough to offset the losses. “In case an individual wants to carry-forward losses arising in a financial year (such as loss from house property, loss from sale of capital assets, etc.) to subsequent financial years and set off these losses in future, the income tax return should be filed and the said losses should be disclosed in the income tax return,” added Karmakar.

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What if you under-report your income, even accidentally

There are advantages to staying compliant with tax laws by filing your ITR on time and adhering to other stipulated provisions. “An individual who is required to file an income tax return under the income tax laws should file the return to avoid any late filing fee and future litigation by the tax authorities. Also, in case there is any balance tax liability to be paid by the individual, such tax should be paid and the income tax return should be filed within the due date to avoid additional interest,” said Karmakar.

Suresh Surana, Founder, RSM India (a tax consultancy), agrees, and says that non-filing of ITR can attract the attention of tax authorities, leading to increased scrutiny of financial transactions and activities. This can result in audits, assessments, and investigations, causing inconvenience and potential financial loss. “There is a potential exposure to a penalty of 50 percent of the tax payable on under-reported income under section 270A of the Income Tax Act, if the taxpayer fails to file the return and consequently under-reports their income. Also, In extreme cases of non-compliance or tax evasion, tax authorities have the power to seize assets and properties of defaulters to recover tax dues,” added Surana.

Obtaining loans and credit

Another important situation where you may need to provide your ITR document as proof is when applying for any type of loan, whether it be a home loan, personal loan, or similar financial products. “Banks and financial institutions often require copies of the ITR as proof of income for processing loans or credit. Non-filing can hinder the ability to obtain financing or result in higher interest rates,” said Surana.

Also read | Not filing income tax return: Know the fines, penalties and other consequences

Immigration and visas

If you are planning to travel abroad, you may be asked to provide proof of income for your visa applications. “For self-employed individuals seeking immigration or visas for foreign travel, ITR filings are often required as part of the documentation process. Non-filing may complicate or delay visa applications,” explained Surana.

Additionally, you may be required to provide documents for not just one year, but for multiple years. “Most embassies and consulates request for a copy of your income tax returns for the last 2-3 years. Therefore, income tax returns should be filed by individuals who wish to travel overseas,” said Karmakar

Government subsidies and other benefits

Certain schemes may also require you to furnish your ITR to establish your eligibility. “Non-filing of ITR may disqualify businesses and individuals from certain benefits, deductions and / or exemptions, subsidies, loans, or government schemes that require proof of tax compliance,” said Surana.

Also read | What is Form 16? Here's what you need to know about this key ITR filing document

Reputation and goodwill

Timely filing of ITR and complying with tax regulations enhances your credibility and trustworthiness, helping build reputation and goodwill. Whereas, “failure to comply with tax laws reflects poorly on the reputation and credibility of businesses and self-employed individuals. It can erode trust among clients, customers, and stakeholders, leading to a loss of goodwill and business opportunities,” said Surana.