Why you should file your returns….Gautam Nayak
The law requires you to file your returns if your income exceeds the taxable limit, irrespective of whether you have paid all the taxes due on your income or not
The law requires you to file your returns if your income exceeds the taxable limit, irrespective of whether you have paid all the taxes due on your income or not
This is the tax return filing seasonthat time of the year when you are running around trying to locate papers and documents necessary for you to file your income-tax returns. The amount of papers that you need to locate and collate to ensure that you fill in your returns correctly does seem a big problem. Many of you would be wondering as to why you need to go through this annual ordeal of filing your returns at all.
The obvious answer is, of course, the fact that you are required to do so by law. The law requires you to file your returns if your income exceeds the taxable limit, irrespective of whether you have paid all the taxes due on your income or not. Many people believe that since tax is deducted at source on the salary income by the employer, they need not file their returns at all. That is incorrect, as every person having taxable income is required to file his return of income.
The only exception is for a person having only salary income of up to Rs. 5 lakh, and either no other income, or income by way of bank interest, in respect of which the entire tax due has been deducted at source. Typically, a salaried employee would earn interest on his savings bank account, on which tax would not be deducted at source. Even if he declared such interest income on an estimated basis to his employer to be added to his salary income for the purpose of deduction of tax at source, the actual interest credited would be known only on 31 March, and may be higher. Such a salaried employee would, therefore, not be eligible for the exemption from filing of income-tax returns. To overcome this problem, from next year, a deduction has been provided for savings bank interest of up to Rs. 10,000, so that employees having savings bank interest of less than Rs. 10,000 would be eligible for the exemption from filing returns.
Payment of taxes is one part of a persons tax obligation. Filing of an income-tax return is a quantification of ones actual tax liability after adjusting the taxes actually paid till that time. By not filing returns, one risks penalties for non-filing and interest, besides losing the benefit of carry forward of any losses that one may have incurred and be eligible for. If you have not filed returns, even if you have paid your taxes, the tax laws treat you as a person who has not disclosed his income.
There are also various practical reasons as to why you need to file your returns. A copy of your income-tax return is required as evidence of your income for the purposes of taking a loan, making a visa application, applying for a credit card, among other purposes. Having your tax records up to date is becoming more and more important as more and more service providers rely upon a copy of your returns to provide services.
The income-tax department has of course made it easier in recent times for you to file your tax returns by providing a facility of filing returns, creating a category of tax return preparers, among other initiatives. Also, there are websites that provide the facility of filing returns. However, unfortunately, the tax laws continue to be complex and difficult to understand for most individual taxpayers.
It is extremely difficult for small taxpayers to be aware of the frequent tax law changes due to amendments in law and due to decisions of various courts and tribunals, which are often conflicting. Further, the changes in the tax return forms every year makes it very difficult for the taxpayer to re-learn each year how to fill in the amended tax return. Unlike many foreign countries, where most individuals fill in their own returns, in India, the complications and frequent changes force taxpayers to use the services of chartered accountants or other professionals to ensure that they do not make mistakes.
It is perhaps time for the income-tax department to take stock of the reasons for non-filing by so many persons liable to tax, analyse the costs and burdens that taxpayers are forced to incur in order to comply with the filing requirements, simplify and standardize the procedures and law, educate taxpayers about the procedures and thereafter resist the temptation to keep tinkering with provisions and procedures. One hopes that such a long-term view is taken for the benefit of taxpayers. I am sure that most taxpayers would love to have the experience of filing their annual tax returns without feeling harassed and drained out at the end of the process.
Gautam Nayak is a chartered accountant.