Be it startups or salaried persons, most people are faced with certain challenges when it comes to managing taxes. Most of us know the basics of it but only a few of us are actually conscious about the nitty-gritties and the best practices.
As a consequence, there is a common misconception among taxpayers that once TDS or advance tax has been paid, the filing of returns is not a very important exercise. However, it is essential to know, you have an unfinished job at hand until you have filed your tax returns. It is in fact our constitutional obligation to file returns at a stipulated time of the year.
What is Income Tax Return (ITR)?
According to the Income Tax Act, 1961, the term ‘return of income’ means proof of income earned by an individual or a business entity. Filing of income tax returns (ITR) is a voluntary but mandatory obligation where one reports his income, capitals gainsed, and other allowances and reliefs claimed for a particular year. It is mandatory for every person to file his ITR as per the taxation rates imposed by the government if his income exceeds the exempted tax bracket.
Who is required to file Income Tax Return (ITR)?
The income tax slabs can be categorized as below.
1) Individuals All those individuals whose annual income exceeds the basic exemption tab have to file ITR. Even if you have your investment plan charted out and your tax obligation is NIL, you have to file your returns if you fall under any of the following categories.
▪ Individuals (men and women both) with taxable income exceeding Rs 250,000 p.a.
▪ Senior Citizens with taxable income exceeding Rs 300,000 p.a.
▪ Senior citizens aged more than 80 years with taxable income exceeding Rs. 500,000 p.a.
2) Businesses • Companies, Partnerships, and Proprietorship: Income tax is calculated at a flat 30% on the total income of companies and firms. Tax slabs are not applicable here.
When to file your Income Tax Return (ITR)?
The due date for filing of IT returns is 31st of July every year after the financial year ending 31st March. In case the income/accounts requires an audit, the last date for filing returns is 30th of September of the same assessment year.
Why to file your Income Tax Return (ITR)?
This is the million-dollar question. Providing misleading information or non-filing of returns can amount to tax evasion and lead to penalty or prosecution or both. Under the Income Tax Act, non-filing of ITR can attract a penalty of Rs 5000. While the fear of the dreaded taxman visiting your doorstep is common, the actual benefits lost on non-filing of income tax returns are of greater magnitude.
Here are some reasons why you must make this exercise a part of your annual routine.
1. Your tax history matters As a reward for this yearly routine, you get a powerful financial record. Banks and High commissions of various countries across India refer to your ITR to assess your financial stability and capacity before extending credit (personal, housing business or vehicle loans) or issuing a visa. This is really helpful, especially if you have plans to travel to Europe, the US, Canada, or the UK. Absence of or discrepancy in the ITR of any single year can work against you and the chances of your loan or visa getting sanctioned can decrease. Certain credit card companies too insist on proof of tax return before issuing a card. The same goes for financial institutions, which may rely on ITRs of past few years before undertaking business transactions with you.
2. A sign of value and responsibility Filing returns shows that you are a responsible individual/business. A good record of ITR can reflect strongly on your image as a business when it comes to winning contracts and procuring high-profile projects. Sometimes, tender applications for large-scale infrastructure and other government projects are scrutinized based on the ITRs of past 5–7 years along with other factors.
3. Third party insurance claims and high-value covers In case of accidental death of an insured individual due to road accident, insurance claims are empowered by providing a clean record of ITR. Any missing returns can weaken the claim in case the insurance policy hits a disputed path. The claim amount is calculated as a product of years of life expectancy of the deceased and the annual income as mentioned in the ITR. Life insurance companies ask for ITR documents against high-value policies. A life cover of Rs 1 crore or above, is only available against ITR documents that are proof of your annual income.
4. For startup funding ITRs can be treated as trusted measures of profitability and scalability by angel and seed investors and venture capitalists. Gaining visibility on your cash flows can become easy with a healthy tax record.
5. A repair for your losses Speculative or non-speculative losses, short- or long-term capital losses, or losses of any other type incurred by an individual or a business can be recovered if, and only if, they are accounted for in the tax return filed in that financial year. If not, they cannot be considered for exemption in subsequent years. Considering the above reasons, it seems that this time-consuming affair of filing returns is worth the effort and pain after all. With the deadline of 31st July nearing your door-step, it is time that you step out and seek file your tax returns either by yourself or by taking the assistance of experts and professionals for correct filings.
VenturEasy can provide such Income Tax Return Filing Services with complete assistance and consultancy so that you can keep moving with your business with peace of mind.
Nikita Bhatia is the co-founder of VenturEasy, an online platform for Company registration, book-keeping, accounting, tax consultancy and legal compliances in India. A Chartered Accountant and company secretary by profession, she has wide experience in the fields of audit, accountancy, taxation and corporate governance.