Filing Income Tax Returns is the most important thing that one is responsible to do for which we use Form 16. Every employee receives an IT Form 16 from their employer as a certificate of tax deduction. It verifies that TDS has been deducted on your salary by the employer. If an employer deducts TDS on salary, he must issue income tax Form 16 as per tax rules in India. Form 16 is issued once a year, most likely after the end of the financial period.
This is one of the critical most income tax forms. It contains information you need to prepare your income tax return in India. Form 16 has various components including Part A and Part B. Part A includes your personal details, some tax-related questions, and Part B includes other questions regarding your taxes. Not only is it necessary to file your returns on time, but there are other benefits also which you have for filing your returns right on time.
Benefits of Filing Tax Return on Time :
- Loans: Filing an ITR will help individuals when they will apply for a vehicle loan or otherwise. All major banks can ask for a copy of tax returns. Additionally, showing a copy of ITR receipts also comes handy if your loan application is rejected or if you are not getting as many loans as you want.
- To carry forward losses: If you do not file your returns, you will not be able to carry forward capital losses, if any, in a financial year to be adjusted against the capital gains made in subsequent years. A long term capital loss in one year can be carried forward for 8 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 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. Some embassies may ask for ITR receipts of the previous 3 years, while others may ask for the most recent certificate.
- 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 5 years. This again is to certify your financial status and whether you can support payment obligations or not.
- Self Employed: Businessmen, consultants, and partners of firms do not get Form 16. Hence, ITR receipts become all the more important for them, provided their annual income exceeds the basic exemption limit of Rs 2.50 Lakh. For all other sorts of financial transactions, ITR receipts will be the only proof of income and tax payment for the self-employed.
Additional Reading: Pre-determinants to Claim Tax Benefits on a Personal Loan