In most countries, tax is a major source of revenue for the government and the same is true for India as well. A developing country such as India needs to develop both social and physical infrastructure. Hence, it is a civic responsibility of every citizen of India to contribute towards the development of the country by paying taxes. In its attempt at increasing tax revenues, the present government has achieved positive results to some extent.
Since, the taxpayers largely consist of salaried people; it was also needed to increase the tax slab. According to the last year data of April, the number of new ITR filers in the financial year 2017-18 had increased to 99.49 lakh (figure downloaded on 30.03.2018) as against 85.51 lakh, new ITR filers more during the FY 2016-17. In percentage points this is translated into an approximate progress of 16.3% in the increased tax base.
The introduction of major reforms like Demonetization, Goods and Services Tax (GST) and Electronic Filing or E-filing income tax has also helped to increase income tax compliance. The increase in tax slab rate and taxpayers has directly led to a significant increase in the number of tax filers. According to D Joshi, chief economist at Crisil Ltd, direct tax buoyancy has increased to 1.9 in the fiscal of 2018 from 0.6 in fiscal of 2016. It is estimated that the direct tax collection in the fiscal year 2018, stands at 6% of GDP, which is the highest in a decade.
As people begin to realize that paying taxes is a mandatory task, they also have an obligation to file income tax returns. All Indian taxpayers are covered under the Income Tax Act of 1961. Section 139(1) specifically says that all persons whose total income in the financial year is higher than the maximum slab not chargeable to tax, need to file their income tax returns. Broadly speaking, there are two types of filing income tax returns namely, Manual Filing and eFiling.
This is the conventional method of filing returns in which a taxpayer has to manually file returns by visiting the income tax office.
This is the modern or advanced method of filing returns in which a taxpayer can electronically formulate and submit the returns.
Each method has its own pros and cons. However the advantages of e-Filing income tax significantly outnumber its disadvantages. The benefits of E-Filing your taxes are mentioned in the forthcoming paragraphs.
The first and foremost benefit is that e-Filing offers convenience and comfort to its users. Taxpayers would not have to physically visit the post office and stand in long queues to file returns. They can do so in the comfort of their home or workplace, thus saving time and energy. Another important feature of e-filing ITR is that it doesn’t depend on bank holidays or festivals but rather available online, 24 hours a day, 7 days a week.
In today’s electronic age, people would like to remain updated all the time. E-filing gives taxpayers this benefit, as the status is updated real time on the specific website that the return has been received and accepted. The acknowledgment of income tax return is instantaneous and faster. In the traditional scenario, taxpayers had to depend on the postal service to know the status of their return. Since there are various stages in the ITR process namely filing, receiving, verification, revision, refund, etc, the whole process used to be too cumbersome in the pre-electronic days. E-filing saves the time of both tax filers as well as the income tax department as the mode of communication if through email.
While - filing income tax, the user has to upload few documents related to his/her profile. Since these documents are stored in an electronic format, they are saved securely and can be accessed anytime in the future. In the case of the manual filing of returns, it is left to the tax filer’s choice on whether to keep any document or proof of necessary documents. And there is always a risk of proofs or artifacts getting spoilt or misplaced over the years.
Since the mode of communication in the case of e-filing is through email, the process of revision or refund is significantly faster. In the traditional manner, tax filers have zero or no clue about the status of their refund. They had no choice but to wait. Moreover, they do not have the luxury to check the status as there’s no manual portal available to them. Also, e-filed refund returns are processed much faster than paper filed returns.
Filing of returns is a complex process as it requires completion of multiple forms and attaching multiple documents. To complete this task manually is even more burdensome and is avoided by many individuals. E-filing makes this task relatively smooth as the data is auto-filled through hyperlinks, making it easier for the tax filer on the filing of prospective returns.
Any manual task is prone to errors and filing of income tax returns is no different. E-filing of return involves using tax calculator mechanism and computable worksheets that eradicates the chances of incorrect calculations. Since all the files, worksheets and documents are digitally linked on the e-filing portal or website, any incorrect detail is instantly highlighted if furnished. In a nutshell, it’s more user-friendly and has got step-by-step instructions. While one cannot eliminate errors completely, e-filing through built-in automation and seamless connectivity reduces errors considerably, as compared to the manual filing. Also when the same data is inputted from manual forms by the IT department, it can lead to human error due to the sheer magnitude of work.
The convenience of e-filing has also led to the convenience of easy and prompt payment and refund. E-filers have the option of linking their respective bank account with their ITR profile. This ensures direct deposit for a refund and direct debit for tax payments.
In order to file a return manually, an individual might be required to hire a professional to apprise him/her about the latest tax rules, necessary calculations and documents required. However, all these information are available online in various portals. An individual can make the use of these while e-filing returns without paying anything.
While we constantly hear the term data breach in today’s world, the same is not possible during e-filing. The data inputted by tax filers is not accessible to anyone else due to built-in validations and passwords. With manual forms, there is always a risk of our income details falling in the wrong hands at our chartered accountant’s office or elsewhere.
While these were some of the basic benefits of E-Filing Your Taxes, there are few clandestine benefits as well, that are extended to the tax filers. The tax filer can make use of these benefits mentioned below, if and when the need arises.
Banks, nowadays ask for a host of documents while processing a request for a vehicle loan or a home loan. To minimize NPAs or bad loans, all major banks have started to ask for a copy of tax returns. For example, State Bank of India requests vehicle loan applicants for their latest salary-slips which shows all deductions, TDS certificates, a copy of ITR for previous financial years, Form 16a. E-filing income tax helps in the sense that it helps to retrieve present and past returns easily.
Many tax filers are unaware that ITR can be used as an Income and Address proof. A tax filer can conveniently retrieve and present the same, as and when demanded by the authorities.
While applying for Visa, most embassies require you to furnish your tax returns. In the case of US and UK Visa, the embassy might ask ITR for the past couple of years at the time of the application. Since applying for Visa is generally not planned many years in advance, it helps to do e-filing as the documents are stored securely and can be downloaded only when the need arises. Additionally, producing ITR receipts definitely strengthens your case, showcasing you as a tax compliant citizen with a genuine source of income in India.
If you file the return within the stipulated due date, you will be able to carry forward losses (short-term or long-term), if any, to the next 8 years. It must be noted that, a long-term capital loss can only be adjusted against a long-term capital gain in the year. While this feature is true for both manual and e-filing, in the case of former, the data has to be inputted and validated for each year. E-filing income tax helps in the sense that all the documents and worksheets are digitally interlinked and data can be repeated with the help of few clicks.
Now that you are aware that you are required to file your Tax returns, the tax department deserves the right to impose a penalty of up to Rs.5,000 on defaulters. The Benefits of E-Filing Your Taxes is that you are constantly notified by the tax department through email and SMS. While the government publishes the same information in newspapers and journals, there is always a chance of it getting overlooked. Some websites like ClearTaxcom also rewards e-filers for every reference who successfully e-files on their site.
If you intend to buy Insurance with a high life cover of Rs 50 lakh or Rs 1 crore, you might be asked to furnish ITR receipts. These ITR documents can be made available in the online platform, when companies need to verify your annual income. While deciding the sum insured of an individual, the insurance provider considers multiple factors one of which is the income of the insured. An ITR document validates if an insured has or does not have a high salary and likewise his/her requirement of a higher insurance cover.
Unlike the salaried class, businessmen, professionals, consultants and partners of firms do not get salary slips of Form 16. In such cases, ITR receipts act as a source of income proof for them, in case they extend the threshold for basic exemption limit. While managing multiple documents and heavy files is a tedious task in itself, e filing income tax can prove to be a blessing in disguise.
When you file electronically, you don't have to print paper forms, find envelopes or purchase cupboards for storage.
While we have discussed at length the benefits of E-Filing your taxes, there are few disadvantages as well.
E-filing of income tax would require access to a computer or mobile device with an internet connection. Each online tax filing websites may have different software requirements and compatibility issues. While the postal service is available even in remote locations, the same cannot be 100% confirmed for electricity and internet. Filers who are not technologically cognizant may find electronic tax filing and submission to be more difficult than traditional filing.
E-filing may not be possible if you have a complex tax return with multiple parameters. Digitalization is a work in progress and every tax forms may not be available in the electronic domain. Few types of tax returns may not be eligible for e-filing. In such cases, the tax filer has no option but to go back to the traditional method.
When you take all factors into perspective it might be safe to conclude that the benefits of E-filing your taxes is much more than following the manual process. The whole purpose of the creation of e-filing mode is to create a tax system that makes the taxpayer’s life easy. The Economic Survey 2017-18 has spoken in the affirmative about a steep rise in tax filings in our country. If we talk in percentage points, the direct tax collection of FY 2017-18 was 18% higher than that of FY 2016-17. A rise, however big or small in the number of tax filers would see an eventual increase in tax revenue. This would directly result in greater spending by the government and ultimately reap economic benefits in the long run.