WHY SHOULD YOU FILE YOUR INCOME TAX RETURNS EARLY
As you all are aware, the government has extended most tax deadlines, including the due dates for tax return filing due to the pandemic situation. But as the idiom goes ‘the early bird catches the worm,’ filing the tax returns early not only relieves you of the process early but has a host of benefits. We feel it is better to be in an advantageous position by filing your tax return early and not waiting until the extended due date.
Importantly, if you fail to file the tax return within the due date, you may have to face multiple consequences. Filing a tax return after the due date is known as a belated tax return, which can be filed till 31st March of the same assessment year (AY).
In such cases, some of the benefits get withdrawn. It also attracts a late fee at the time of filing return, depending on the delay. Given a choice, none of us wants to get into that situation.
Following is a list of reasons why everyone should consider filing their income tax return not just before the due date but well in advance:-
Faster Refund
If there is any tax over prepaid taxes after adjustment, it has to be refunded by the Income Tax Department. But the Tax return would have to be filed to get a refund. Therefore, if you file your return early, your refund will get processed earlier than those who wait till the end (FIFO basis – First In First Out).
Preventing Interest Loss on Refunds
Further, taxpayers are entitled to a 6% annual rate of interest on the extra taxes paid if the refund amount exceeds 10% of the total tax due for the year as calculated in the Tax Return. We often see such excess taxes refunded due to payment of extra taxes as advance taxes or TDS (per your Form 16).
If the tax return is filed within the due date, the interest is calculated on the refund from the 1st day of April of that year (year of tax filing or most commonly referred to as Assessment year) to the date the refund amount is processed. However, if the taxpayer files late, the interest is computed from the date of the actual filing and hence results in interest loss of at least four months from April to July.
Avoiding Interest, Penalties, and Fines
Delay in filing or incorrect filing has various disadvantages, including interest for the delay and late filing, penalties, and fines too.
Interest: Interest @ 1% on the final taxes due will be calculated for each month of delay. This can be conveniently avoided if the tax return is filed before the due date.
Penalties: Just like you incur a late payment fee on your credit card or phone bills, late filing attracts penalty of ₹ 5,000 and ₹ 10,000 depending on whether the delay is until 31st December or 31st March of the Assessment year (i.e., the year in which tax return is to be filed). For small taxpayers, i.e., with a total income of less than ₹ 5 lakh, the penalty will only be ₹ 1,000. You can avoid such penalties and fines if you file the tax return before the due date.
Getting a Right to Review or Revise Your Returns
Although the tax return filing process seems simple, mistakes can happen in the form of overlooked income, missed tax benefits, etc. In case you have filed your Tax Return on time, you do get opportunities to revise your returns even after the due date has passed.
Common mistakes, such as missed income and extra tax paid, can prove costly in the long term, whether through fines imposed by the tax department or through the loss of tax refunds. Best of all, as long as the initial Tax Return was filed before the due date, you can file the revised returns any time before the end of the current financial year.
Carry Forward of Losses
Business loss, capital loss, loss from other sources, etc., can be carried forward to the next financial year and set off against the gains in those years, thereby providing tax relief in the subsequent year. But, such losses can be carried forward only if the Tax Return is filed before the due date.
Proof of Creditworthiness for Loan Processing
Tax Return copies are demanded by banks as an income proof when granting a loan as well as by foreign visa granting authorities as proof of financial stability. Tax Return filed after due date might result in a poor impression of your creditworthiness/financial discipline, and that’s easy enough to avoid just by filing your tax returns on time.
Eliminating Errors & Last Moment Glitches
Even though filing Income Tax Returns has become a lot easier through the years, in case you wait till the last minute to file your taxes, there is a chance that you might miss out on one or more tax savings that were due to you. It can be avoided if you do the job of keeping the information and documents which are necessary to complete the process accurately well in advance.
More importantly, if you wait till the last moment like a majority of taxpayers, you might find that the e-filing income tax website being overloaded with requests leading to several technical failures, which might end up delaying the ITR filing process.
This sort of stress is avoidable if you proactively file ITR online well before the due date. Moreover, if you keep postponing the filing of the return, then you may even forget to file the return. So it is always advisable to file the return well in advance.
Hence, we M/s Mukunda Shiva & Associates, suggest you file your ITR well in advance rather than procrastinating.
Disclaimer: This article is produced by an expert panel of Mukunda Shiva & Associates for educational and self-improvement purposes. It contains general information and advice applicable to the majority. This article is copyrighted to Mukunda & Shiva Associates. If you like to reproduce entirely or partially, please seek written permission by stating the reasons. (contact@msassoicates.pro)
Professional assistance: You must not rely on the information on this website as an alternative to professional advice. If you have any specific questions, you should consult a professional for guidance.