Why Should You File Your Income Tax Returns?
Money matters have always been complicated, essentially because even the smallest error could mothball into a major financial loss. It is not just about earning and spending, it is about everything.
The income that you earn, be it as a salary, a fee, or a profit, provides for more than just your family. The expenses that you make to nourish and entertain your family are in fact income for other people and businesses. Even the taxes that you pay are spent on facilities and services that ultimately result in the improvement of your lifestyle.
Income tax filing is an activity that you must perform even though you may not have any taxable income. This gives the government an indication of the number of people that fall under this category, and also let you know what the sources for which tax is applicable are. Knowing this information is useful when you want to save income tax and earn more income that may be used for your expenses or enhance your savings. Below are the added advantages of filing your income tax returns:
Why is it mandatory to file income tax returns?
One would argue that the salary slip or the balance sheet of the business owner would be the proof of his income. However, these are not issued by the government and thus their authenticity is questionable.
When you file your income tax returns, you are in fact creating an irrefutable income proof. It clearly states the amount of income you earned in the respective financial year and the taxes thereof, which have been paid or are yet to be paid.
The tax return details your earnings capacity or your gross capacity to take on debt and repay it on time.
Why is filing income tax important for taking loans?
You would need one or the other type of loan during different situations. It could be an automobile, education, home, or personal loan depending on the type of financial requirement.
Even consultants and entrepreneurs need loans and they do not even have any salary slips for income proofs. Filing ITR is thus even more critical for them. For any and all such loan requirements, the most critical factor is your income, as it will determine the amount of loan that you can repay along with the interest.
Generally, all banks and financial institutions accept salary slips as proof of income; however, they prefer the ITR and require the same. Past three years income tax returns are ideally asked for by the lending institutions.
Regularly filing your ITR, creates and improves your creditworthiness in terms of payback capacity. It also shows the growth of your credit capacity is based on your income growth, thus making you low-risk.
Why is filing income tax necessary to claim TDS?
There are plenty of transactions wherein the taxes are charged at the source itself as mandatory by the law, and such charges are deducted from your income as Tax Deducted at Source (TDS).
Such deductions evidently do not account for the exemptions that you are eligible for and thus, you have to settle the same with the income tax department at the end of the year. Such settlements are only possible by filing your ITR and claiming the surplus taxes paid to be refunded to you.
Particularly in the case of business, wherein carrying forward the losses is required, it is only through filing your ITR, that you will be able to do so.
How can you save tax with proper tax planning?
It is important to know about the various tax-saving tips in advance. Doing something at the last minute is never advisable and the same applies to tax planning as well. Unless you plan and account for the things that are certain; you will not be able to efficiently plan for uncertainties and contingencies. A good way to protect yourself and your investments against such unforeseen circumstances is by investing in contingency funds.
You may invest in different financial products to save income tax. Section 80C of the Income Tax Act allows investments made in Public Provident Fund (PPF), Equity-Linked Savings Scheme (ELSS), National Pension System (NPS), and others as tax deductions. When you file your ITR, you may claim all these deductions to reduce your liability.
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