Why should you file ITR even if your income is not taxable
Many people are confused when it comes to filing tax returns when the income falls below the taxable limit or when no taxes are due. What if your income is below the taxable limit of Rs 2.5 lakh per year? Should you still file tax returns? Yes You should. The last date to file /e-file your income tax return is 31st July. Here is why should you file ITR even if your income is not taxable!
What is income tax
Annual charge levied on both earned income (wages, salaries, commission) and unearned income (dividends, interest, rents). In addition to financing a government’s operations, progressive income taxation is designed to distribute wealth more evenly in a population, and to serve as automatic fiscal stabilizer to cushion the effects of economic cycles.
What is income tax return ITR
It is the format in which all the assesses should declare their income details, tax payment details and other basic details. There are totally 8 ITR forms in India, which should be selected based on the type of incomes an assesses has.
ITR 1 – For individuals having income from salary, one house property and interest.
ITR 2 – Those who doesn’t fall under ITR 1 + For individuals and HUF who doesn’t have Business Income.
ITR 3 – For partners in firms (but doesn’t have any personal business).
ITR 4 – For individuals and HUF’s having business income.
ITR 4S – For individuals and HUF having income from presumptive business.
ITR 5 – For persons other than Individual, HUF, Company and for whom ITR 7 is not applicable.
ITR 6 – For companies other than companies claiming exemption under sec-11.
ITR 7 – For persons including companies required to furnish returns under various sub-sections of 139.
Who has to file Income Tax Return?
According to Section 139(1), every person whose total income during the previous year exceeds the maximum amount which is not chargeable to income tax has to file a tax return. During the current assessment year, any person earning exceeds Rs.2, 50,000/- is required to file Income tax return. In the Income tax act , all the incomes are divided into 5 heads as follow:
- Income from House property
- Income from Business or profession
- Capital gains (long term / short term)
- Income from salaries
- Income from other sources (those incomes which don’t belong to any of the above 4 heads)
The total of Net income from all heads is knows as gross income. After reducing the deduction from gross income is known as taxable income. ITR is filled against this taxable income.
How to fill ITR online
Before you start the process, keep your bank statements, Form 16 issued by your employer and a copy of last year’s return at hand. Next, log on to www.incometaxindiaefiling.gov.in Follow these steps:
- Step 1: Register yourself on the website. Your Permanent Account Number (PAN) will be your user ID.
- Step 2: View your tax credit statement — Form 26AS — for the financial year 2015-16 . The statement will reflect the taxes deducted by your employer actually deposited with the I-T department. The TDS as per your Form 16 must tally with the figures in Form 26AS. If you file the return despite discrepancies, if any, you could get a notice from the I-T department later.
- Step 3: Under the ‘Download’ menu, click on Income Tax Return Forms and choose AY 2016-17 (for financial year 201-16 ). Download the Income Tax Return (ITR) form applicable to you. If your exempt income exceeds Rs 5,000, the appropriate form will be ITR-2 . If the applicable form is ITR-1 or ITR 4S, you can complete the process on the portal itself, by using the ‘Quick e-file ITR’ link.
- Step 4: Open the downloaded Return Preparation Software (excel utility) and complete the form by entering all the details , using your Form 16.
- Step 5: Ascertain the tax payable by clicking the ‘Calculate Tax’ tab. Pay tax (if applicable) and enter the challan details in the tax return.
Why should you file ITR even if your income is not taxable
- Loans: Having filed the ITR will help individuals, like the one in the example above, when they have to apply for a vehicle loan (two-wheeler or four-wheeler). All major banks can ask for a copy of tax returns. State Bank of India asks vehicle loan applicants for the latest salary-slip showing all deductions, TDS certificate / Form 16, copy of ITR for last two financial years. Additionally, showing a copy of ITR receipts also comes handy if your loan application is rejected or if you are not getting as much loan as you want.
- To claim refund: If you have a refund due from the Income Tax Department, you will have to file returns, without which you will have to forgo the refund.
- To carry forward losses: If you do not file returns, you will not be able to carry forward capital losses (short-term or long-term), if any, in a financial year to be adjusted against capital gains made in the subsequent years. A long-term capital loss in one year can be carried forward for eight consecutive years immediately succeeding the year in which the loss is incurred. Long-term capital loss can be adjusted only against a long-term capital gain in the year. But short-term capital loss (STCL) can be adjusted against long- as well as short-term capital gains.
- Visa processing: If you are traveling overseas, foreign consulates ask you to furnish ITR receipt of the last couple of years at the time of the visa interview. Some embassies may ask for ITR receipts of previous three years, while some others may ask for the most recent certificate. This is especially true if you plan to travel to the US, UK, Canada or Europe, not so stringent for South East Asia or Middle East.
- Buying a high life cover: Buying life cover of Rs 50 lakh or Rs 1 crore has become commonplace. However, these covers are available against your ITR documents to verify annual income. Life insurance companies, especially LIC, ask for ITR receipts these days if you opt to buy a term policy with sum insured of Rs 50 lakh or more. The sum insured one can get with a term cover depends on many factors one of which is the income of the insured. If an insured does not have a very high salary, he doesn’t need a higher insurance cover.
- Government tender: Experts say that if one plans to start their business and need to fill a government tender or two for the same, they will need to show their tax return receipts of the previous five years. This again, is to show your financial status and whether you can support the payment obligation or not.
- Importance for self employed friends: Self-employed businessmen, consultants and partners of firms do not get Form 16. Hence, ITR receipts become an even more important document for them, provided their annual income exceeds the basic exemption limit of Rs 2.50 lakh. For all sorts of financial transactions, ITR receipts will be the only proof of income and tax payment for the self-employed.
- Costs you nothing: Any individual with an annual income of more than 2.5 lakhs before allowing deduction such as 80C or 80D is mandated to file income tax returns in India. Returns can be filed either in a physical manner or electronically. If you think that you can get rid of paying taxes by not filing your returns, then you are definitely wrong. Because not filing returns will cost you more than not paying taxes.
- Safe not sorry route: Income tax department might issue a warning by sending you a notice to file your returns as soon as possible if it thinks you are jumping your taxes. And if you are found to be obligated to pay taxes, The IT department will keep adding up additional interest of 1% per month till the time you clear off your tax payments this is over and above regular interest for non-payment of taxes within time. Further, you will also be subjected to several penalties. The last date to file /e-file your income tax return is 31st July. So, if you haven’t yet filed returns yet, do it now to avoid any penalties in future.