Benefits of Early Filing of Tax Returns

Come tax season, all taxpayers in India make a mad scramble to complete their taxation and Income Tax Returns before the deadline. According to the Income Tax Act , all citizens of India earning an income are required to pay a percentage of their income as income tax to the government. Income tax is a major source of funds for the government, who uses it to carry out infrastructural, economic and administrative development.Income tax is calculated based on your total income in a financial year, which is considered from the 1st of April to the 31st of March. The year when you are filing the tax is called the Assessment Year. The financial year and assessment year are denoted as FY 20-21 and AY 21-22, for example. The deadline for filing income tax returns in India is usually 31st July of the Assessment Year, but due to the pandemic, the government has extended the deadline multiple times. Currently, the deadline has been set at 31st December 2021.There are many advantages to filing your income tax much before the deadline. In this article, we’ll be looking at the multiple benefits of early income tax filing.

Filing income tax is reliant entirely on numbers and meticulous calculations. You need to be as detailed as possible in calculating income from multiple sources, expenses, deductions etc.
When you’re filing income tax well in advance, you have ample time to review your calculations and make corrections wherever necessary. Last-minute filing, on the other hand, can lead to unnecessarily hasty calculations and eventual errors. This, in turn, may require corrections and sometimes, the deadline may have already passed.

If you have already paid Advance Tax or TDS (Tax Deducted at Source) , then you may be eligible for a tax refund if your tax liability turns out to be lesser. The income tax filing is deposited in the taxpayer’s account after income tax filing. The verification of ITR and refund process is completed on a first-come-first-serve basis.This means that those taxpayers who filed their ITR early will get their refunds early. This is a great incentive to file income tax in advance. You stand to get your refund quite early. If you delay ITR filing, the refund process may also be prolonged.

Under Section 234F, if income tax filing is not done before the due date (31st July), then the taxpayer has to pay a penalty of Rs. 5000 in case it is eventually done before the 31st of December. If the ITR is not filed even by 31st December, then a penalty of Rs. 10,000 is charged. Early tax filing can help you avoid these penalties.

Mistakes in ITR filing are more likely to occur if you’re doing it just as the deadline approaches. If the IT department finds an error or mismatch in the filing, they may send you a Defective Return Notice, asking you to elaborate on the mismatch. The best way to avoid this is to file your taxes early and take your time to rule out errors.

A great reason for filing income tax early is to get your ITR documents early. The ITR documents are requested by lenders when you apply for a loan. Having the latest ITR is seen as a boon and lenders are more likely to approve your loan if they have the last three years ITR and see that your creditworthiness is good.ITR may also be required when you apply for a visa to travel to foreign countries to verify your financial capability.

If you’re running a business, filing ITR early can allow you to carry over your current losses to the next year and offset your income accordingly.

Some states in India ask for your ITR documents for the last three years when you’re registering a purchased property. So, early filing may help you in this case.

When the deadline for ITR filing approaches, the Income Tax online portal is under heavy load since most of the country is filing their ITR. This can lead to slow loading and server breakdown due to the traffic and you may not be able to complete the process before the deadline.

You can file your income tax once the financial year ends and up to 31st July of the Assessment Year. The deadline for the current year has been extended to 31st December 2021. How early you can actually file your taxes actually depends on how early you can get Form-16 from your employer. Make sure you keep all your income documents ready so that you can get Form 16 and start your IT filing process as early as possible.Ready to make the most of your money? Start your tax planning journey now!

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.