The early tax filer gets benefits galore

7 MinsSep 03, 2020

You have managed to do all your tax-saving investments on time. But you still have that one last step to complete to get a clean chit from the tax authorities. You have to file the Income Tax Returns (ITR) by the due date. This year, the due date of filing fresh or Original returns (for the Assessment Year 2020-21) by individual assessees has been extended up to December 31, 2020. This is the second time the date has been extended after initially extending it to November 30, 2020, from the general due date of July 31, 2020. For filing Revised Returns (for Assessment Year 2019-20) as well, the due date has been extended to November 30, 2020, after initially extending it to September 30, 2020, from March 31, 2020.

income tax

That being said, there are certain advantages of filing your Income-Tax Return (ITR) ahead of time. Let’s see what they are:

1. Gives you ample time to prepare – You may need to collect several documents for filing your ITR from various sources. For instance, from your bank - interest certificates, loan repayment statements, TDS certificates, from your employer - Form 26AS, details of capital gains made on your equity or debt investments from your broker or mutual fund house, and more. And once you collect all these details you need to furnish them to your tax consultant or Chartered Accountant (CA) to compute your tax liability correctly. Since all this could take a while, you can avoid last minute panic by starting early. Your tax consultant/CA will be able to give your case better time, and this would reduce the chance of errors.

2. Allows carry forward and set off of losses – Say you have incurred a capital loss or a loss from business & profession in the computation of total income. This will be disallowed from being carried forward and set off against future gains in the subsequent assessment years if you have not filed the ITR before the due date. Therefore, to avail the benefit of ‘carry forward and set off of losses’ in subsequent assessment years, file your ITR well before the due date.

3. You avoid late payment and penal interest – When you file the ITR after the due date –– technically called ‘belated returns’ ––it attracts interest and fee. You are liable to pay interest under Section 234A of the Income-Tax Act, 1961 on the tax due @1% per month or part thereof until you file the ITR.

Moreover, a fee has to be paid under Section 234F of the Act of up to Rs 10,000, depending on your total income and date of furnishing return.

And if there is a refund, you will not be entitled to interest on it (which is 0.5% per month or part of the month on refund amount) as per Section 244A of the Act.

4. Quicker refunds – When you clearly know that you are entitled to a tax refund, file your ITR well before the due date for a faster refund. If you file the ITR very close to the due date, the tax refund may get delayed due to more workload at the tax department’s end later on.

Plus, don’t ignore the opportunity cost. If your tax refund is a sizeable amount, you can put it to productive use early and reap gains. The longer you delay, means missing out on higher interest that could be earned on the amount.

Do note that if your refund amount is greater than 10% of the tax paid, you are paid an interest @0.5% per month or part of the month on refund amount calculated from the date of filing the return as per Section 244A. You will lose this benefit if you file the returns after the due date.

5. Faster processing of loans, credit cards, and visa applications – ITRs serve as proof of income earned during a financial year. When you apply for loans, credit cards, visa, etc. it is one of the mandatory documents you need to submit, without which the application may not be processed. Hence, if you plan to apply for a loan or apply for a visa in the near future, file your ITR on time.

6. Enables buying a higher life cover – An optimal life insurance cover is a must for every bread earner of the family. But not all insurers permit a higher insurance cover of Rs 50 lakh or more without furnishing last few years ITRs.

7. Faster processing of returns - Closer to the due date of filing ITR, the tax filing portal server may work slow, due to several server requests. This may cause a technical glitch in the return-filing process. To avoid the unpleasant experience and the deadline rush, starting early makes sense.

[Also Read: Tax Saving Tips & Schemes]

Today, e-filing of I-T Returns is mandatory for individuals, HUFs, and many other assessees subject to certain conditions. Furthermore, it is necessary to quote your Aadhaar number (or Aadhaar Enrolment Number if you have applied but not received your Aadhaar card) without which your ITR may not be processed by the Income-Tax department. Likewise, linking your Permanent Account Number (PAN) with Aadhaar is necessary (although the last date for linking the two has been extended till March 31, 2021).

Avoid stress by submitting your tax returns before the deadline, and enjoy a host of benefits from banks and other institutions.

Here’s a step-by-step approach to e-file your I-T Return online:

Step #1: Go to the Income Tax e-Filing portal,

Step #2: Login to e-Filing portal by entering user ID (PAN), Password, Captcha code and click ‘Login’

Step #3: Click on the ‘e-File’ menu and click ‘Income Tax Return’ link.

Step #4: Based on the steps followed, your PAN will be auto-populated. Then select the following:

- Assessment Year

- ITR Form Number

- Filing type- as ‘Original/Revised Return’

- Submission mode- as ‘Prepare and Submit Online’

Step #5: Click on ‘Continue

Step #6: Read the Instructions carefully and Fill all the applicable and mandatory fields of the Online ITR Form. (When you do so, periodically click on the ‘Save Draft’ button to save the entered ITR details as a draft)

Step #7: Choose the appropriate verification options in the ‘Taxes Paid and Verification' tab. You may choose any one of the following options to verify the ITR:

- I would like to e-Verify*

- I would like to e-Verify* later within 120 days from date of filing

- I don’t want to e-Verify and would like to send signed ITR-V through normal or speed post to "Centralized Processing Centre, Income Tax Department, Bengaluru, Karnataka – 560500” within 120 days from date of filing.

Note: *The e-Verification code can be generated through:
Aadhaar One-Time Password (OTP);
Pre-validated Bank Account; or
Pre-validated Demat Account

Choosing the last two verification options, the ITR will be submitted but the process of filing the ITRs is not complete until it is verified. The submitted ITR should be e-Verified later by using 'My Account > e-Verify Return' option or the signed ITR-V should be sent to CPC, Bengaluru.

Step #8: Click on 'Preview and Submit' button. Verify all the data entered in the ITR.

Step #10: ‘Submit’ the ITR.

Disclaimer: This article has been authored by PersonalFN, a Mumbai based Financial Planning and Mutual Fund research firm. Axis Bank doesn't influence any views of the author in any way. Axis Bank & PersonalFN shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.