The Income Tax Act requires individuals to file an income tax return if their annual income exceeds a specified threshold, known as the basic exemption limit.
This means anyone whose income surpasses this limit must file a return. However, there are specific conditions where filing a return is beneficial even if your income is below this limit.
Benefits of Filing an Income Tax Return
Expert Advice
Experts recommend filing an income tax return even if your income is below the basic exemption limit. There are several advantages to doing this. Let’s explore them in detail.
For Tax Refund
Often, Tax Deducted at Source (TDS) is applied to your income, which may come from salary, commissions, fees, etc.
According to Rama Karmakar, Tax Partner at EY India, sometimes the TDS deducted is more than what is necessary.
To claim a refund of this excess TDS, you need to file an income tax return. If you don’t file a return, the excess money will remain with the income tax department.
To Carry Forward Losses
If you incur a loss in a financial year, it can be offset against future gains. Karmakar explains that to carry forward these losses, you must file an income tax return.
This allows you to adjust losses from selling property or capital assets against future capital gains.
Failing to file the return for the year of loss means you cannot carry forward or adjust the loss in subsequent years.
For Loan Applications
Income tax returns are crucial when applying for loans. Banks and Non-Banking Financial Companies (NBFCs) use them as a primary proof of income.
Suresh Surana, founder of RSM India, states that loan applications are processed based on the submitted income tax returns. While you can get a loan without filing a return, it may come with a higher interest rate.
To Go Abroad
When applying for a visa, you might need to provide proof of income. Surana mentions that for self-employed individuals, visa applications are processed only after income proof is submitted, with the income tax return being the strongest evidence.
Visa authorities often request returns from several previous years.
