Filing income tax returns is an important responsibility for every individual or business owner who earns an income. It is a legal obligation mandated by the government, and failure to comply with it can result in penalties and legal action. In this article, we will discuss the importance of filing income tax returns for the financial year 2022-23 and why it is important to declare other sources of income.
Importance of filing income tax returns:
- Legal requirement: As per the Income Tax Act, 1961, every individual whose annual income exceeds the basic exemption limit is required to file an income tax return. Failure to comply with this legal requirement can result in penalties, fines, and even imprisonment in some cases.
- Facilitates loan and credit approval: Filing income tax returns regularly demonstrates a person’s financial credibility and responsibility. Banks and other financial institutions use an individual’s income tax returns as one of the primary documents while evaluating loan applications. A clean and consistent tax return filing history can significantly improve the chances of getting a loan or credit approval.
- Refunds and adjustments: Filing an income tax return is the only way to claim a tax refund in case of excess tax paid during the year. Filing a tax return also enables taxpayers to carry forward any losses incurred during the year and adjust them against future taxable income.
- Avoidance of legal complications: Filing an income tax return can prevent legal complications in the future. In case of any discrepancies in the tax return, such as under-reporting of income or claiming false deductions, the tax authorities can initiate legal action against the taxpayer. Filing a tax return regularly ensures that all income and deductions are accurately reported, reducing the risk of any legal complications.
Why it is important to declare other sources of income
- Legal obligation: Under the Income Tax Act, any income earned by an individual or entity, whether from a primary or secondary source, is subject to taxation. It is mandatory to declare all sources of income, including rental income, interest income, capital gains, and any other income earned during the financial year. Failure to disclose such income can lead to severe penalties and legal action.
- Prevents tax evasion: Under-reporting or not declaring all sources of income is considered tax evasion, and it is a punishable offence. By declaring all sources of income, taxpayers can prevent tax evasion and ensure that they remain compliant with the tax laws.
- Avoidance of legal complications: Non-disclosure of income can result in legal complications, such as penalty and interest charges, and in some cases, even imprisonment. It is essential to declare all sources of income to avoid any legal complications in the future.
- Ensures accurate tax calculation: Declaring all sources of income ensures accurate calculation of tax liability. Different sources of income attract different tax rates, and by not disclosing such income, taxpayers can end up paying lower taxes than what is required, which is also considered tax evasion.
In conclusion, filing income tax returns and declaring all sources of income is an essential responsibility for every taxpayer. It not only ensures compliance with the law but also facilitates loan and credit approvals, refunds, and adjustments. Filing tax returns regularly and declaring all sources of income can prevent legal complications, tax evasion, and ensure accurate tax calculations. It is therefore important to take this responsibility seriously and fulfill it diligently and hire CA firm or tax consultant in gurgaon or faridabad.