When it comes to filing your Income Tax Return (ITR), you may assume it's only necessary if you have taxable income. However, there's much more to it than just that. Filing ITR serves as a vital proof of your income and financial history, even if you fall below the taxable threshold.
It provides a comprehensive record of your financial activities, ensuring transparency and credibility. Not only does it benefit your financial well-being, but it also plays a crucial role in various aspects of your life.
Let us discuss the benefits of filing ITR in detail.
Proof of income and financial history
ITR serves as an official record of your income and financial activities for a given financial year. Even if you have no taxable income, filing ITR provides documentary evidence of your financial status. Financial institutions and authorities often require ITR documents as proof of income or financial history. By regularly filing ITR, you maintain a comprehensive record of your financial transactions, ensuring transparency and credibility.
When applying for loans, filing your Income Tax Return (ITR) becomes advantageous. Lenders typically require proof of tax returns for the past three years when considering applications for home loans, car loans, and other types of loans. This requirement allows lenders to assess your financial position both in the past and currently, determining your ability to repay the loan.
Carry forward losses and set off
Filing ITR becomes especially important when you have incurred losses, such as business losses or capital losses from investments. These losses can be carried forward and set off against future gains in subsequent years, reducing your tax liability. However, to avail of this benefit, it is necessary to file ITR and report these losses within the specified time frame.
In certain situations, you may have paid taxes or faced tax deductions at source, despite not having any taxable income. This can happen if you have earned interest on savings accounts or fixed deposits, or if your employer has deducted taxes from your salary. By filing ITR, you can claim refunds for these tax deductions and ensure that you receive the right amount back from the tax authorities.
International travel plans
If you neglect to file your ITR, it can impede your plans to travel abroad. The ITR form is among the necessary documents requested by countries you intend to visit. Having a history of filing ITR works in your favor and enhances the likelihood of obtaining visa approval.
Compliance with international regulations
If you have international financial dealings or assets, filing ITR becomes even more crucial. Many countries have agreements and treaties to prevent tax evasion and ensure the transparency of financial transactions. Failing to file ITR can lead to complications and scrutiny, especially if you have overseas investments, bank accounts, or properties.
In essence, filing ITR extends beyond a mere obligation to the tax authorities. It acts as a comprehensive record of your financial journey, enabling you to provide proof of income and financial history when needed. Ensure that you fulfill all the formalities and file your ITR for the financial year 2022-23 by 31st July 2023 to avoid any late fees.