If you haven’t yet filed your first Income Tax Return (ITR), you must have observed a hustle about ITR filing in the month of July every year.

The Questions you probably have includes what is Income tax, Income Tax Return and its Filing? More importantly, Should I bother about it?

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Let’s understand then:

Income Tax is an Annual Tax collected by Government on the yearly income of an Individual, Firm, Company etc. In This Article we are dealing with income tax on an Individual like you (the one who is reading this).

The government  has specified the rates and methods of calculating income tax on income earned in a particular financial year (a financial year starts from April and ends on March next year). We are limiting our discussion for Financial Year(FY) 2017-18 (i.e. period between 01.04.2017 to 31.03.2018). Income Tax Return filing due date for the said FY is July 31, 2018 (This month only).

Now, Income Tax Return Filing means calculating your tax as per the rates specified and paying the same to govt. and filing an online form (ITR1 or ITR2 or ITR3 and ITR4) with particulars of income and tax payment Details.
Rates of taxes Specified for income earned in FY 2017-18 are as follows:

Let’s see what Pooja thinks about it

Pooja started working as Ecommerce Operator a year back in FY 2017-18. Her annual salary is around Rs. 7 lakh.

She, on the advice of her colleagues and professional friends, invested Rs.15000 in equity linked savings scheme, Rs. 1, 00,690 in life insurance, and Rs. 10,000 in public provident fund. She also invested Rs. 12000 in National pension Scheme which gives additional tax benefit than 80C. Thus, Pooja invested a total of Rs. 137,690 in tax-saving investments.

Her employer has calculated tax on her income and deducted TDS and gave her form 16 for the same. It is similar to your own form 16, like :

Now the TDS has been deposited by the employer and no further tax is payable by Pooja. Does she still need to file her Income Tax Return?

Pooja thought there was no need for her to file an Income Tax Return (ITR) this July but that is not true.

“As per the Income Tax Law, Anyone earning salary exceeding the basic exemption limit (which is Rs. 2.5 Lakh) has to mandatorily file ITR even there is no liability of tax or the TDS has been paid by the employer. Only those who earn less than basic exemption limit (which is Rs. 2.5 Lakh) are exempt from filing income Tax Return.”

Is the return filing is mere formality? Are there any advantages of doing so?

ITR filing is not merely a formality, infact it has substantial benefits. An ITR form is an important document as it is more elaborate than Form 16. While Form 16 shows salary and the tax deductions by only one employer, ITR also shows income from other sources such as rental income(if any) sale purchase of shares(if any) etc.

BENEFITS OF ITR FILING 

Loans
For Every kind of loan either home, personal, vehicle or educational loan, the ITR is clearly required. An ITR is the proof that validates your income and all loans are given to those who can show the repayment capacity.

All the major banks of India ask for the latest salary-slips, TDS certificate / Form 16, copy of ITR for last two to three financial years. You may not realize the need of ITR now but by filing ITR you enable your eligibility for loan application.

To claim Income Tax Refund 
If higher TDS has been deducted and deposited than your tax liability or any deduction has been missed in TDS calculation by company, you can get the same rectified in ITR and claim refund only by filing it.

In case of elderly and senior tax payers in India, the substantial source of income is Interest on Fixed Deposits, wherein the TDS is deducted at 10% by the bank but the total income of such tax payer is below 2.5 lakh or the tax liability is less than TDS amount. Such refunds can only be claimed by filing Income Tax return.

Visa processing
If you aspire for overseas studies or wish to travel abroad for any other purpose, ITR plays a very important role as foreign consulates definitely ask to furnish ITR Copies of the last couple of years at the time of the visa interview, along with asset statements.

Also, in case of sponsors, ITR copies are required of the applicant along with the sponsors.

An ITR form provides for the financial capabilities of yours and the sponsors and confirms that you shall be able to pay the fee for overseas education course.

Whenever you are travelling abroad, whether on a business trip or leisure purpose, always keep your Income documents handy and accessible online. Consulates specify these requirements in most cases.

Getting credit card or high life insurance cover
While applying any credit card or any credit line you have to show your ITR. Similarly for “Life insurance covers”, insurance companies ask for ITR copies if you take a term policy having Sum Assured of Rs 1 Crore or more.

Self-employed 
Self Employed businessman and professionals are must to file their Income Tax Return, as they do not have salary slips, Form 16 or any other income supporting document. Hence, ITR acknowledgement becomes an even more important document for them because it is the only proof of income for them. ITR is required for their business proof, income proof for loan, credit card, insurance, and many times during tender submissions etc.

Tenders (specifically govt tenders)
There are some businesses and government projects which involve work contracts and are usually allotted through tender process. To participate or to apply in these tenders, they require certain eligibility criteria and documents and most of the time they seek for some qualifying turnover of the bidders. To support the same and to fit in the criteria, ITR copies of the bidders are required. This is to generally to ensure that the participant can honour the work contract.

WHAT ARE THE CONSEQUENCES OF NOT FILING ITR?

You cannot carry forward losses 
Individuals who are into trading of securities (shares, MF or other instruments) and incur losses in a financial year, and if they do not file returns, they will not be able to carry forward such capital losses (short-term or long-term). A capital loss in one financial year can be carried forward for eight consecutive years and can be set off against gains in such subsequent years to save tax. Intra-day loss can also be carried forward.

Penalty 
The due date for Income Tax Return for the year ending 31st March, 2018 is JULY 31, 2018. If the same is not filed before due date, it can be filed along with the penalty.

The penalty for the same is:
If Return filed during 01/08/2018 – 31/12/2018 : Late fee Rs. 5000
If Return filed during 01/01/2019 – 31/03/2019 : Late Fee Rs. 10000

If total income does not exceed Rs.5 Lakhs then this late fee will be restricted to Rs. 1000 and return for the year ending 31st March 2018 cannot be filed after 31st March 2019

CONCLUSION 

It is clear that filing ITR is always better than not, perhaps it is no option for not filing if your income exceed minimum amount not chargeable to tax (i.e. 2.5 Laks). Also, the department is continuously making it simpler and convening to file, calculate, pay and verify ITR.

(The writer is Founder,  ItzEazy.in — a Delhi-based government documentation startup)