Your ITR (Income Tax Return) is a statement of your earnings, expenditures, profits, and losses for a financial year.
Filing tax returns even if your income falls below the taxable slab is valuable to you later on when your income is more. Losses made during the year or years of low income will likely be available to offset against the higher income earned later on. So what is income, and why do you need to get into the habit of always filing your ITR?
What Constitutes Your Income
Your income is not just your salary or the earnings from your business. There are other heads of income for income tax purposes, so be sure to include them all while filing your tax return. These include interests on bank deposits, rental income from house property, and even capital gains from the sale of land or shares.
The Importance Of Being On Time
You need to file your IT returns before the deadline (July 31) for a particular financial year, in order to avoid problems related to late filing. Even if you file the return one day after the final date, it is a belated return, and you might lose out on certain benefits. Here are some of the problems you may face:
Revision of returns becomes difficult
If you have overshot the deadline for filing your tax returns, you cannot correct mistakes that you might have made. If you have submitted the tax returns on time, there are no limits to the corrections you can make—whether it’s some calculation errors or you’ve provided incorrect bank details.
Carry forward of losses
Suppose you have incurred a loss in your business or through the sale of your house property. If you file your returns on time, you can actually adjust these losses against your income at a future date. However, losses recorded in belated returns will not be counted as eligible for adjustments, irrespective of whether you have paid up all your tax dues for that period.
Penalties and interest on taxes due
If you have pending tax payments when you file your returns and are late with your filing, you will incur interest charges. You will be levied an interest of 1% per month on the total taxes due. Besides this, if you don’t file the returns even by the end of the assessment year, you may face prosecution by the authorities.
Even if there are no tax dues, if you fail to file your tax returns by the end of the assessment year, one year after the relevant financial year, you can be charged a penalty. You could be charged up to Rs. 5000 if you can’t provide a valid reason for the delay to the authorities.
Refunds – Delays and losses
If you are late with your IT returns submission, any refunds you’re eligible for, on the excess tax payments you might have made through TDS and self-assessment taxes, might get delayed. Even more important, you will also lose a certain portion of the interest paid on the refunds.
The interest rate is applied on the refundable amount starting from the 1st of April of the assessment year and accrues until the refund is paid out. In case of delayed filing of IT returns, the interest calculations begin only after the date of filing. So, you potentially lose interest payment for April, May, June, and July.
Tax filing is an important duty as it provides the government with a record of the earnings and expenditures of its citizens. Remember to file your ITR on time.