Importance of Filing Income Tax Returns

tax filing

Many citizens or individuals often think that filing tax returns is voluntary and therefore dismiss it as burdensome and unnecessary. However, this is not a healthy perspective on tax-filing. It is the social and moral duty of every responsible citizen of the country to file tax returns is an annual activity. The government analyses the means and amount of expenditure of the citizens. After determining the tax return, it provides a platform for the people to claim a refund.

1. Filing returns – a sign of responsibility
Individuals who earn a specified amount of annual income need to file a tax return within a pre-determined due date as the government mandates. It is the responsibility of each individual to pay tax as calculated. Moreover, failure to pay tax often invites penalties from the Department of Income Tax. Citizens who earn less than the prescribed level of income can file returns voluntarily. The filing of returns indicates that you are a responsible member of the community. Since their income is recorded by the tax department with applicable tax, it is easier for businesses and individuals to enter into subsequent transactions if any.

2. In some cases filing returns is mandatory
It will be a good idea to voluntarily file returns, even if your income level does not qualify for mandatory filing of returns. For instance, proof of tax returns of the last three years is required in the registration of immovable properties in most states. It is easier to register the transaction if people file returns.

3. Important for Your loan or card company
It is a good idea to maintain a steady record of filing returns if you are planning to apply for a home loan in the future. Most of the home loan companies will insist on it. In scenarios where you want to apply for a loan as a co-borrower, you may even consider filing your spouse’s returns. Besides, before issuing a card, even credit card companies may insist on proof of return. Before transacting with the customers, many financial institutions insist on seeing returns over the past few years.

4. A return is necessary for claiming adjustment against past losses
Various losses incurred by a business or an individual, cannot be shown for exemption in subsequent years for tax calculation, if not recorded in the tax return in a financial year. These losses include both short term as well as long term capital losses, speculative as well as non-speculative, and various other types of losses. Since you never know when you may want to claim an adjustment against past losses, it is advised to file returns regularly.

5. ITR receipt for hassle-free processing of bank loans
Most NBFCs and banks ask for ITR receipts of the latest three years while you apply for high-value loans like car and home loans. Lenders often consider ITR receipts as the most authentic documents that support an individual’s income. Therefore, if you are planning to avail of car or home loans in the future, then you should regularly file an income tax return.

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