Do you know Why Salaried individuals need to file ITR despite tax deduction by employer
Salaried employees must file ITR despite tax deducted by employer
Filing an Income Tax Return (ITR) is a crucial responsibility for salaried employees, even if their employer has already deducted tax at source (TDS). Here's an explanation of why this is necessary:
1. Legal Obligation
Filing an ITR is a legal requirement under the Income Tax Act, 1961, for individuals whose income exceeds the basic exemption limit. For the Assessment Year 2023-24, this limit is ₹2.5 lakh for individuals below 60 years, ₹3 lakh for senior citizens (60-80 years), and ₹5 lakh for super senior citizens (above 80 years).
2. Claiming Refunds
There might be instances where the total tax liability is less than the TDS deducted by the employer. By filing an ITR, employees can claim a refund for the excess tax paid. This can happen due to various deductions and exemptions that are not considered while deducting TDS.
3. Declaration of Additional Income
Salaried employees might have additional sources of income, such as interest from savings accounts, fixed deposits, rental income, or capital gains. Filing an ITR ensures that all sources of income are disclosed and taxed appropriately, avoiding any legal consequences.
4. Carrying Forward Losses
If an employee has incurred losses, such as from house property or capital losses, filing an ITR allows these losses to be carried forward to subsequent years. This can be used to offset income in future years, thereby reducing the tax liability.
5. Obtaining Loans and Credit
Filing an ITR provides documented proof of income, which is essential when applying for loans, credit cards, or mortgages. Financial institutions often require ITR copies for the past few years to assess an individual's creditworthiness.
6. Visa Processing
For individuals planning to travel abroad, many embassies require copies of ITRs to process visa applications. It serves as proof of financial stability and income.
7. Avoiding Penalties and Prosecution
Non-filing or late filing of ITR can attract penalties and interest. Under Section 234F, a penalty of up to ₹10,000 can be levied for failing to file the ITR by the due date if the income exceeds ₹5 lakh. Persistent non-compliance can also lead to prosecution under Section 276CC.
8. Compliance with Tax Notices
In case of any discrepancy or scrutiny, the tax department may send notices requiring clarification or additional documentation. Having a filed ITR simplifies the process of responding to such notices.
9. Proof of Income for Insurance
When buying a high-value insurance policy, insurance companies may require proof of income to determine the eligibility and premium amount. Filed ITRs serve as valid proof.
Conclusion
Filing an ITR is not just a legal formality but a comprehensive process that ensures compliance with tax laws, facilitates financial planning, and provides numerous benefits. It is a responsible practice that contributes to the transparent and efficient functioning of the taxation system.
