We pay income tax because it is required by law. Starting with FY 2017-18 the same argument will apply to income tax returns. But your return is also your proof of legitimate income and a certificate of your financial standing. The latter helps you gain credit from banks and other institutions.
You are taxed according to a basic income tax slab announced every year in the Annual Union Budget. Click here to view the tax brackets for AY 2017-18.
By law, if your income exceeds the minimum exemption limit then you must file your IT return. From AY 2018-19 you would be penalized for failing to do so.
Given below are some credible reasons where your ITR filing proves useful:
To get Income Tax Refunds:
If you earn an income then someone must be paying you this money. That person is often required to deduct TDS at source before this money reaches you. If you are a salaried individual, you might not have submitted certificates of deductions and tax exemptions such as medical bills, house rent receipts, life insurance premium payments, mutual fund payment receipts etc. on time.
Without these documents your employer will not deduct those investments and expenses from your taxable income and you would end up paying more tax than was due. In such cases you can gain refunds with interest only if you had filed your ITR on time.
To carry forward losses:
Losses arise not only out of business or investment but also out of expenses such as acquisition of house property. You can claim the benefit of these losses while declaring your income on the ITR form.
The income tax return process allows to set off losses from one head under another. If the losses are still not recovered while reporting income for a particular financial year you can carry forward loss to the next year provided you file your return by the due date.
Applying for Credit:
Regular filing of income tax returns is proof of your credit worthiness. By revealing your sources of income and financial profile in front of a legal authority you create a reliable document of assets and liabilities, the effectiveness of your career and investment choices and your ability to repay a loan. Banks and other financial institutions often ask for your ITR acknowledgements for the past 3 financial years before approving a request.
Visa authorities also require proof of your bona fides as a good citizen and an honest taxpayer. Hence your tax returns are a mandatory document before you can get hold of a Visa.
Contribution to the Economic Development:
The government requires revenue to build infrastructure, finance welfare schemes and support incentives to business. Taxpayer contributions are a very important part of fiscal resources and an essential community investment for yourself and your progeny for the future to come.