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Thursday, July 28, 2016

File Tax Return 2016

 If you carefully compare the benefits of filing the return and the effort involved, the odds will always be in favour of filing your tax return every year
 
 
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. If you carefully compare the benefits of filing the return and the effort involved, the odds will always be in favour of filing your tax return every year. It seems like an unwanted statutory obligation for many as they are unaware of the benefits they forgo and the consequences of not filing tax returns. Let's try to understand why filing tax returns is in your interest.
 

What is an income tax return? In simple words, a tax return is a summary document or declaration about the results of all your financial transactions undertaken during the tax year. It consolidates the income under all sources and calculates the taxes due after allowing all eligible deductions.

 

Is it mandatory to file it? There is a general misconception that if there is no tax payable, there is no need to file tax return. This is not true. The income tax department requires you to file a tax return in case your gross total income (i.e., before allowing any deductions under sections 80C to 80U of the Income-tax Act, 1961) exceeds R2.5 lakh (R3 lakh for tax payers older than 60 years and R5 lakh for those older than 80 years) in the financial year. Further, even if you do not have taxable income but if you qualify as a 'resident' individual and have any asset or financial interest in an entity located outside of India, then also it is mandatory for you to file.

 

Why don't people file tax returns? Often, it is nothing but laziness because of which some people either file returns late or not at all. The tax department does not send immediate notices if you fail to file your return. And this, too, becomes a reason for people not filing returns. Do remember that eventually, the tax department will use its database to find people who are not regular.

 

Another common reason for non-filing is ignorance or confusion about the process-which tax forms to use, when to submit, what information to give, and other such questions. You can easily educate yourself via various mediums, such as online portals.

 

Another common misconception is that if all taxes due are deducted at source in the form of TDS, then there is no need to file a tax return. But this may not be true in all cases. Generally, as a statutory duty, your employer deducts taxes on your estimated income based on the declaration that you have submitted. Apart from this, taxes are also deducted at source on various other incomes such as interest, commission, rent, and others, at a standard rate. When you club all these incomes with your salary, and also consider tax deductions as applicable to you, the final tax rate applicable may turn out to be different from the TDS rate. Owing to this you may either have to pay more tax or expect a refund. As mentioned above, in both the cases, you need to file your return, either to discharge your tax dues or claim refunds.

 

Advantages of filing a return without taxable income
Tax returns give a detailed account of the total income earned and total tax paid by you. Moreover, these documents are accepted by various agencies as a proof of your income. Some other advantages of filing returns are as follows:

 

Claiming tax refund: The joy of receiving a tax refund equals that of getting a pay cheque. You must file your tax returns if you wish to claim tax refunds. Not doing so would lead to forgoing the refund.

 

Carry forward losses: Income tax laws allow you to carry forward and set off (adjust) certain losses (such as capital losses) against future gain or income. These losses can be carried forward for eight consecutive years immediately succeeding the year in which the loss is incurred. Even if you have taxable income this year, you might have losses to carry forward that can be adjusted against gains in later years when you actually have higher incomes.

 

Easy loan processing: At the time of applying for a vehicle or a housing loan, most banks ask the applicant to furnish copies of tax returns for the past 2-3 years. This helps banks understand your financial position and ability to repay the loan. Providing a copy of returns receipts helps in faster approval of your loan application.

 

Visa processing: If you are planning to immigrate to another country or explore an overseas job opportunity, then prepare yourself in advance. Most embassies and consulates require you to furnish copies of your tax returns for the past couple of years at the time of the visa application. This is especially applicable when applying for visa for the US, the UK, Canada or Europe.

 

What if you don't file your taxes? If you are required to file your returns but miss it, then the tax officer may impose a penalty of up to R5,000 (under section 271F). And if you owe some taxes and still don't file it, then you may be liable to pay additional interest (section 234A), along with other penalties for avoiding taxes.

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