Most people file their tax returns on an annual basis around the last week of July. That is mandatory as failure to file tax returns will attract penalty. With the advent of online filing of returns, the job has become a lot easier for individuals and for business filers. But did you know that tax returns are a very important document and you need to maintain records of your past returns at least for the last 15 years? It may sound quite a task but in your own interest it is advisable to maintain detailed tax records. Here is why.
Are you applying for a loan from a bank?
When you are applying for a loan from a bank as an individual or as a business, the first document that the bank will insist on is copies of the tax returns filed for the last 2-3 years. The acknowledged copies of the tax returns are the most authentic record of your income and that is what the bank accepts as genuine proof. While this is an important document for individuals, it is all the more so for business since a business cannot produce other documents like salary slip. In the case of businesses, it is a combination of tax returns vs financial statements that is accepted as proof. Here one also needs to understand what a compiled financial statement is and what a reviewed financial statement is.
When you apply for Visa to Western countries
Your acknowledged tax returns are the only acceptable document for certain visa requirements. For example, countries like the US, UK and Europe only accept acknowledged tax returns as proof of income. This document is essential for them to ascertain that you have enough business interests in India to return. This is more so when you are sponsoring your son or daughter for higher education abroad. In such cases, it is only your filed tax returns that are accepted as proof of your financial standing.
Are you buying a high life cover or a high value term policy?
This s one more case where you may require furnishing your filed tax returns. In case, the business is buying key man insurance for its business owner then the copy of tax returns of the individual and the business is required. The idea of insisting on tax returns is to ensure that your insurance policy is actually commensurate with your income levels. Otherwise, it can create moral hazard; something insurance companies are very cautious about. Normally, whenever the size of the insurance is very large, the insurance company can insist on copies of the tax returns to satisfy themselves.
Tax returns are very important for businessmen
If you are employed in a reputed organization then your salary slip will be accepted as income proof by most lenders. Alternatively, the Form 16 furnished by the Income Tax department is always adequate proof. In case of self-employed professionals and businessmen, there are no such documents. The only document that is available in such cases is the acknowledged tax returns. That is why the tax returns become a lot more important for businessmen and independent professionals. That is their only real proof of income for all purposes.
Past disputes and refunds
While income tax department normally does not take up very old cases, there are occasions when cases have been dug up from the past. What if you get a notice from the income tax department saying that there is a tax due on some filing 6 years back? You will obviously have to respond to the notice and for that you will require copies of your past tax returns. That is why it is very essential to keep copies of 10 years of returns at the bare minimum and 15 years in a best case scenario. There are some occasions when you may have changed the jurisdiction of your income tax filing and your tax paid details may not have been uploaded. This will result in rejection of refund claims. Alternatively, your refund claims may be held up due to some past dues as per the Income Tax department records. Then there are cases where there is some mismatch between a physically filed return and loss claimed in an e-filed return. In all such cases, you need to meet up with the adjudicating officer with all your tax records and other documents to sort the issue out.
The acknowledged copy of your Income Tax returns (ITR) is a very important proof of income in a variety of cases. Above all, it is also important to maintain detailed records to ensure that you do not have any problems pertaining to your returns in future. Interestingly, your filed tax return can also be used as proof of address in some cases.