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Benefits of filing income tax returns
September, 17th 2015

Anil Kumar started working for an information technology major a year back. During the induction process, Kumar and his peers were told to save up and invest to save on tax outgo. With no liability behind him, Kumar was easily able to save Rs 87,000 over the last one year with some guidance from his father. His annual salary is Rs 3.50 lakh.

As the basic exemption limit for financial year 2014-15 was Rs 2.50 lakh, Kumar's taxable income stood at Rs 1 lakh.

Kumar's father advised him to invest Rs 3,000 a month (Rs 36,000 a year) in Public Provident Fund and Rs 1,500 a month (Rs 18,000 a year) in equity mutual fund. Kumar was also made to buy a term plan of Rs 18 lakh for an annual premium of Rs 3,000. Towards the end of the last financial year, Kumar was made to open a fixed deposit account of Rs 30,000. Between April 2014 and March 2015, his Employee Provident Fund account had collected Rs 15,000. Thus, Kumar saved a total of Rs 102,000 in tax-saving instruments.

After saving on his taxable pay, Kumar thought there was no need for him to file income tax returns (ITR) this July. But that is not true. Anyone earning a taxable salary, exceeding the basic exemption limit has to compulsorily file ITR even if the tax liability was reduced to zero post deductions. Only those who earn up to or less than the basic exemption limit of Rs 2.50 lakh need not file tax return.

And there are advantages of doing so. An ITR receipt is an important document as it is more elaborate than Form 16. While Form 16 shows salary and the tax deductions by only one employer, ITR shows income from other sources also.

Here are some advantages of filing ITR:


Having filed the ITR will help individuals, like the one in the example above, when they have to apply for a vehicle loan (two-wheeler or four-wheeler). All major banks can ask for a copy of tax returns.

State Bank of India asks vehicle loan applicants for the latest salary-slip showing all deductions, TDS certificate / Form 16, copy of ITR for last two financial years.

Additionally, showing a copy of ITR receipts also comes handy if your loan application is rejected or if you are not getting as much loan as you want.

"Even while applying for a housing loan, many banks ask for Form 16 or even ITR receipts," says chartered accountant Arvind Rao.

To claim refund

If you have a refund due from the Income Tax Department, you will have to file returns, without which you will have to forgo the refund.

Some taxpayers may be primarily investing through fixed deposit. On such investments tax is deducted at source (TDS) at 10 per cent. If the individual's total taxable income is less than the threshold of Rs 2.50 lakh, they can file returns and claim a full refund, says Vaibhav Sankla, director at tax consultancy firm, H&R Block.

To carry forward losses

If you do not file returns, you will not be able to carry forward capital losses (short-term or long-term), if any, in a financial year to be adjusted against capital gains made in the subsequent years.

A long-term capital loss in one year can be carried forward for eight consecutive years immediately succeeding the year in which the loss is incurred. Long-term capital loss can be adjusted only against a long-term capital gain in the year. But short-term capital loss (STCL) can be adjusted against long- as well as short-term capital gains.

Visa processing

If you are traveling overseas, foreign consulates ask you to furnish ITR receipt of the last couple of years at the time of the visa interview, says Rao. Some embassies may ask for ITR receipts of previous three years, while some others may ask for the most recent certificate.

This is especially true if you plan to travel to the US, UK, Canada or Europe, not so stringent for South East Asia or Middle East.

"Producing ITR receipts show that one has some source of income in India thus, strengthening your case as someone who will not leave the country for good but will return," explains Rao.

When traveling to foreign countries, whether on a business or leisure trip, experts suggest you always carry income-related proofs along --- salary slip, Form 16 and ITR receipts. Consulates specify these requirements in most cases.

Buying a high life cover

Buying life cover of Rs 50 lakh or Rs 1 crore has become commonplace. However, these covers are available against your ITR documents to verify annual income. "Life insurance companies, especially LIC, ask for ITR receipts these days if you opt to buy a term policy with sum insured of Rs 50 lakh or more," says Sankla.

The sum insured one can get with a term cover depends on many factors one of which is the income of the insured. If an insured does not have a very high salary, he doesn't need a higher insurance cover.

Government tender

Experts say that if one plans to start their business and need to fill a government tender or two for the same, they will need to show their tax return receipts of the previous five years. This again, is to show your financial status and whether you can support the payment obligation or not.
However, this is no strict rule. It may vary depending on the internal rules of the government department. Even the number of ITRs required can vary.


Businessmen, consultants and partners of firms do not get Form 16. Hence, ITR receipts become an even more important document for them, provided their annual income exceeds the basic exemption limit of Rs 2.50 lakh.

For all sorts of financial transactions, ITR receipts will be the only proof of income and tax payment for the self-employed.

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