Taxes form an important part of the government’s revenue. It is collected from individuals and businesses that exceed a certain income level. The government decides on the quantum of tax to charge based on the income tax returns they file.
What Is Tax Filing?
In India, it is mandatory for businesses, individuals, or any other organization to file an annual income tax return if their income is above tax slab set by the government. Through tax filing, they furnish their income details, expenses, and other tax-related information in the Income Tax Return (ITR) forms provided by the taxing authority. According to the details provided in the ITR, they will be taxed. All this is done within a specified due date.
Goods and Services Tax (GST) filing is another aspect of tax filing. Enterprises or individuals must file GST returns for the goods and services they had sold. As such, there are various types of GST return forms to file.
Importance of Tax Filing
Most individuals consider filing income tax is voluntary, and as such, avoid filing tax returns. It is mandatory for a company or a firm. Tax filing has certain advantages for both individuals and businesses.
1. Social and Moral Obligation
The government uses the tax collected for building infrastructure, protecting the country from external threats, keeping law and order in check, providing a conducive environment for the economy to grow, and for the social welfare of the less privileged sections of the country. Thus, filing tax returns is a social and moral obligation on the part of individuals and businesses who earn high incomes.
Though tax filing is not mandatory for low-income people, filing the returns show that they are acting responsibly. Also, they can benefit from subsequent transactions that are allowed within their income limits.
2. Avail Loans Easily
Often, income tax returns are mandatory while applying for a loan or a credit card. Be it individuals, or businesses, most financial institutions mandate income tax returns as proof of income. Generally, income tax returns of six months to three years are necessary as income proof. Based on the returns, the quantum of loan is decided. Without tax returns getting a loan is difficult.
3. Adjustment against Past Losses
Filing returns has an advantage in tax calculation. If all the incomes, be it speculative or non-speculative, are filed in a tax return regularly, any losses incurred in the past year can be carried over to the next year. It will have the advantage of paying fewer taxes in the loss year.
4. Avoid Legal Issues
Under the Income Tax Act, the non-filing of returns will attract a penalty of INR 5,000. With the regular filing of taxes, one can avoid such legal complications.
5. Easy Visa Processing
Many consulates and embassies request tax returns for visa processing. Thus, by having tax returns at hand will help in quick visa processing.
6. Avail Input Tax Credit
An individual or a business can avail Input Tax Credit under the new GST regime. Thus, filing of GST returns is mandatory to get the tax credit.
Tax filing is not just legal and ethical, but also makes you carry out your business transactions without any hassles.