Why one should file tax return?

Why one should file tax return?

Team Crawfin/ Harshal Jawale, CFP^CM

We as financial advisors frequently come across investors who feel filling tax returns is not necessary since taxes are already paid by the employer. We here discuss why it is important to file your tax returns every year without fail.

1.       Birth of TDS and its role in tax filling

TDS meaning tax deducted at source was introduced so that taxman can get each and every entry of your income; from employer for salary or from bank in respect of interest income. Today TDS is deducted from every income at a rate of 10% and this tax is paid to taxman on behalf of you while actual tax liability (rate ranging from NIL to 30%) is left to be assessed for you. One may view his tax credits from form 26AS and confirm tax payment made by employer or bank. Hence note every income where TDS is deducted is already been notified to taxman.

2.       Penalty on late tax filling

In the current year previous year is 2011-12, assessment year is 2012-13 and it ends on 31/03/2013. There is no liability for late filing of income tax return up to 31.03.2013 and after that assessing officer (AO) can impose a penalty of 5000, and that is also his power which he may or may not exercise after giving due hearing to the assessee. If there is tax due after deducting advance tax, TDS and self assessment tax then interest will be applicable @1% per month.

3.       Loss on Tax Refund amount

An individual is expected to maintain records of income for 7 years by the tax department. Let us say if one has not filled tax return for this year but in next year if he faces a situation where tax is cut more than estimated and he seeks tax refund. Please note in such a case assessing officer will slap a notice first to file this year tax return with penalty and only then take the case of next year refund in hand. One may expect such notice for any of the 7 years before this year irrespective of refund-like issue.

4.       Re-assessment of old tax filling

The Income Tax Officer (ITO) has the power to re-assess / reopen cases where he believes that income has escaped assessment. Such power is vested with the ITO up to 7 years from the end of the financial year subject to certain income criteria. This means that even if you have not included certain income in a particular year, the ITO could possibly re-open your case & get you to pay the tax on the same in any future years. The ITO is empowered to levy a penalty on you, which could be up to 3 times the tax that was evaded by such concealment of income.

5.       ITR – V acknowledgment of tax filling

It is one of the pre-requisite documents for passing of loan from bank or while completing employment related visa formalities.

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