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An income tax refund is not free money

A complete of 58.3 million income tax returns have been filed in evaluation yr 2022-23 as much as 31 July. In evaluation yr 2022-23, returns for the income earned through the monetary yr 2021-22 are to be filed. Interestingly, 7.24 million or round one-eighth of the full returns had been filed on 31 July, the final day for submitting. In truth, a press launch put out by the ministry of finance on 1 August identified: “The e-filing portal…set… benchmarks on thirty first July, 2022 together with – highest per second price of ITR submitting: 570 (at 4:29:30 pm), highest per minute price of ITR submitting: 9,573 (at 7:44 pm), and the very best per hour price of ITR submitting: 5,17,030, between 5 PM to six PM.”

These information inform us a number of issues.

First, after a number of years of issues, the income tax submitting system appears to have lastly sorted itself out. The system has come a great distance from round a decade and a half again when it was launched. In the preliminary days, anybody might hack into anybody else’s income tax account so long as that they had entry to some fundamental data just like the PAN and date of start. Second, the truth that practically one-eight of the filings occurred on the final day tells us that many tax return filers had been assured and if not they had been no less than hoping that the federal government would prolong the final date because it has over the previous few years.

It’s an excellent factor that the federal government did not prolong the final date provided that it makes those that filed their return on time look silly. And that shouldn’t be the concept. In truth, extending the final date through the peak of the covid pandemic made sense, however there was no logic to doing that this time round, particularly when the web site wasn’t breaking down.

The query is why do individuals delay submitting their income-tax returns. The reply maybe lies in the truth that many people take our money administration choices very evenly. While we might spend weeks at finish pondering over which cell phone to purchase, the place to take a vacation, and so forth., choices concerning money administration which do not present the identical sort of thrill that choices concerning spending money do are inclined to get postponed.

A superb instance of this is the truth that many individuals get round to creating their tax saving investments solely in March, once they have the entire yr to take action. In the method, they find yourself burning their fingers and investing within the flawed product. Similarly, from the top of the monetary yr in March to finish July, there is greater than sufficient time to file the income tax return. In case of the salaried, Form 16 is not instantly out there. But by early to mid-June, it does turn into out there usually. That nonetheless leaves a minimal of six to eight weeks to file the return. Nonetheless, many individuals find yourself suspending it to the very finish. This additionally stems from the truth that in lots of circumstances individuals have little or no understanding of how the income tax system works of their particular circumstances. Things can get difficult on this entrance, however for people at first of their profession who largely make money by means of their salaries, they’re fairly easy. Hence, it is sensible to have a fundamental understanding of taxes as quickly as one begins one’s profession. Over the years, because the income will increase and the system will get difficult because of totally different sorts of incomes being earned, issues can at all times be learnt incrementally. Even after hiring a chartered accountant (CA) to file the tax return, there is no hurt in understanding how the system works. For one, even CAs make errors.

Finally, now that the income tax returns have been filed, income tax refunds will begin coming in. In their minds, many individuals deal with this as free money and wish to blow it up. But the actual fact of the matter is that it is mainly a delayed income. For the salaried, it is a deferred cost of wage. Or to place it merely, it is your hard-earned money being returned to you. Hence, deal with it such as you would deal with your wage income or your corporation income and not like free money.

Vivek Kaul is the writer of Bad Money.

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