When it comes to filing of income tax return, the most common views that we encounter as tax experts are thus:
- My employer has deducted tax at source on the salary income received by me hence I don't need to file my income tax returns!
- Government has stated that individuals who earn below Rs 5 lakh income need not file income tax returns!
- I work hard & hardly find time. When spending time with family is rare, why waste time on filing income tax returns.
- The deadline for filing tax returns is far away, why bother now!
- I have anyway missed the deadline for filing tax returns (July 31), so now it does not matter whether I file the returns or not!
Here are six reasons why you must file your income tax returns
1. Early bird gets the best
In case you are of the opinion that the last date for filing, that is, July 31 is a far call now and you could afford to rest, beware. It's always best to finish of this chore at the earliest so that you do not get into the crosshairs of the last minute rush filers and make a mess of the tax return.
Begin your preparations and execute your return filing process as soon as possible.
2. A stitch in time saves nine
Even if you have missed the July 31 deadline, you can go ahead & file your tax return immediately without any further delay. Penal interest is applicable for delayed filing, ONLY IF you have any pending tax liability.
Suppose your entire tax liability has been paid up before March 31, 2011 then there is no penal interest liability for you to take care of at the time of filing your returns.
In case there is any pending tax liability as on March 31, 2011 then the penal interest increases with each month of delay in filing your tax returns.
3. Fail to file and pay the price
In case you fail to file your tax returns at least before March 31, 2012, you may be liable to pay a penalty of Rs 5,000.
Also, tax returns are subject to time barring provisions, that is, currently you cannot file tax returns for any years preceding financial year 2009-10.
Hence it becomes pertinent you start filing tax returns immediately.
4. Create history, file tax returns
When you file your tax returns every year, you manage to create your financial record with the tax department.
This financial / tax history is positively viewed and favourably used by most agencies with whom you may need to interact, such as when you avail any kind of loan (home, personal, vehicle loan, etc), when you apply for VISA etc.
5. Proof of (financial) life
Income tax return is essential for making any investment and goes to prove that you have a valid source of income to make such investment.
6. New rule, added confusion
The tax department has notified that individuals with salary income below Rs 5 lakh are not required to file their tax return subject to certain conditions* being met. Though this move would benefit the new entrants to employment, for others this rule is nothing but increased confusion in deciding whether to file tax return or not.
*Conditions for exemption from filing tax return under Rs 5 lakh rule
1. Single employer income
2. Savings account interest up to Rs 10,000
3. PAN should be correctly declared to the employer
4. Employer should have deducted tax on both salary & savings account interest
Accordingly, an individual who has income from multiple employers OR FD / term deposit interest OR house, wherein she/he is claiming interest deduction would need to file her/his tax return.
Considering the above pointers, filing your tax return seems to be a GOOD IDEA rather than saying, filing tax returns? NO IDEA.