Businesses, like individuals, are required to pay tax on the profits that they earn in a financial year. Once the financial year gets over they are required to calculate their incomes from all sources, prepare a tax return and file the return. There is a deadline within which businesses are required to file their income tax returns. Filing the returns on time is important. It helps businesses avoid any tax penalties which they might face if the tax filing is delayed. Besides this, filing of income tax returns on time also promises different types of benefits for businesses. Let’s understand why filing of income tax returns on time assumes so much importance –
- Ability to carry forward business losses
Businesses try and earn the maximum possible profit from their operations but sometimes there might be losses too. If the business makes a loss in any financial year, such a loss is allowed to be carried forward to the next financial year. The loss can then be set off against the profit which the business earns in the next year. As the profit gets reduced, so does the tax liability for businesses. However, this carry forward of losses is allowed only when the income tax return is filed on time showing the loss incurred. If the returns are not filed within the filing deadline, the losses would not be allowed to be carried forward.
Even if your business incurs a capital loss when selling a capital asset, the said loss can be carried forward to subsequent financial years and used to set off capital profits.
- The business can avail a loan if needed
Business operations require a steady source of funds and if the internal reserves of the business fall short of providing the necessary finances for business activities, businesses resort to loans. Business loans are easily available as they are offered by both banks and financial institutions. However, to raise a business loan the income tax return of the business for the current and the last few years is an important document which is required by lenders to assess the business’s financial status. If the returns are not filed on time such income tax returns cannot be furnished by the business to lenders which would jeopardize the ability to avail loans when needed.
- For avoiding penalties
As mentioned earlier if businesses do not file their income tax returns on time, it leads to penalties levied by the income tax department under Section 234F. These penalties incur added expenses for the business which is bad for profit. For instance, as per the Section, if the income tax return is not filed on time, the penalty amount might go up to INR 10,000 which would prove to be an additional burden on the business. So, to avoid these penalties, on time filing becomes important.
- To get Government tenders
This is especially true for contractors who run their business on successful tender applications. Government tenders might prove profitable but to be able to qualify for such tenders contractors have to furnish their duly filed income tax returns of the past years. If the tax returns are not filed on time it would not be possible to obtain them and submit them as an eligibility criterion when applying for tenders. This would lead the business to lose out on lucrative tenders which would have proved to be a good source of revenue.
- To get the benefit of presumptive tax scheme
Section 44AD of the Income Tax Act, 1961, deals with the presumptive tax scheme. This scheme is applicable for businesses whose profits are below INR 2 crores. Such businesses can pay a presumptive tax on 8% of their non digital transactions or 6% of digital transactions making it easier for them to file their returns. The scheme of presumptive taxation, is available when the taxes are filed timely. Even if the taxes are filed beyond the due date, presumptive tax can be availed but a penalty will be charged for late filing . This would unnecessarily increase business cost and should be avoided
- To claim a tax refund
If a TDS has been deducted for any income earned by a business and the business can claim a refund of such TDS, refunds would only be allowed if the income tax return has been filed on time. So, businesses looking to claim an income tax refund should file their taxes on time so that the refund can be claimed successfully.
- Faster refund process
You read it right! The refund of tax is processed on a “first come first serve” basis. This means, if you file your return early, your refund will be processed earlier than those who wait until the end. So why wait until the last day to file your returns?
- Review and revise your Income Tax Return
Okay, we all have been in that situation where we might make a mistake during filing ITR and find about it later. Filing return early makes sure that you get enough time to review or rectify all the details and the department gives you time to revise your Income Tax Return. However, this is possible only if you file your return within the time frame of the due date.
- Avoid legal repercussions
We hate to tell you but, filing your Income Tax Return after the due date or not filing it at all has legal implications. In case you file your return after the due date, you will have to pay an interest u/s 234A for late filing @ 1% per month or part thereof of tax amount.
So, these are some of the reasons which make on time tax filing important for businesses. Though businesses might have multiple operations which demand their time and resources, tax filing should not be procrastinated. It should be done on time to reap the above-mentioned benefits.