Why Should You File Income Tax and Register for GST? Risks of Not Filing Income Tax and Registering for GST

Why Should You File Income Tax and Register for GST?

Filing income tax and registering for GST (Goods and Services Tax) are not just legal requirements but also come with many benefits. Let’s understand why they are important and the turnover limits for these obligations.

Why File Income Tax? 

Income tax is a tax you pay on the money you earn. Filing your income tax return (ITR) is important for several reasons:

  • Stay Legal: If you earn more than a certain amount, you must file your tax. Not doing so can lead to penalties and fines.
  • Proof of Income: Filed tax returns are often needed when applying for loans, visas, or other financial services.
  • Carry Forward Losses: If your business or investments have losses, filing taxes allows you to use those losses to save on future taxes.
  • Get Refunds: If more tax was deducted than needed, filing helps you claim a refund.
  • Help the Country: Taxes help fund schools, hospitals, roads, and other services that benefit everyone.

Why Register for GST?

GST is a tax on goods and services. If your business meets certain conditions, registering for GST is a must. Here’s why it’s beneficial:

  • Legal Requirement: If your business turnover crosses a certain limit, GST registration is mandatory.
  • Save Tax with ITC: Registered businesses can claim back the GST they pay on purchases, which lowers their tax bills.
  • Expand Your Market: GST registration lets you sell across states and work with larger companies or government contracts.
  • Boost Credibility: Having a GST number makes your business look more trustworthy to clients and partners.
  • Simplify Taxes: GST reduces the issue of paying multiple taxes, making compliance easier.

Turnover Limits for Filing Income Tax

  Whether you need to file taxes depends on how much you earn:

  • For Individuals:

    • Income above ₹2,50,000 per year (for people under 60 years).
    • Income above ₹3,00,000 per year (for people between 60 and 80 years).
    • Income above ₹5,00,000 per year (for people over 80 years).

  • For Businesses:

    • All companies, firms, and LLPs must file taxes, no matter how much they earn.

  • For Freelancers and Professionals:

    • If your income from work is over ₹50,000 a year, you need to file taxes.

Turnover Limits for GST Registration

You must register for GST if your business turnover crosses these limits:

  1. For Goods:

    • ₹40 lakh in most states.
    • ₹10 lakh in special category states.

  2. For Services:

    • ₹20 lakh in most states.
    • ₹10 lakh in special category states.

  3. Voluntary Registration:

    • Even if your turnover is below the limit, you can register for GST to get benefits like input tax credit and more credibility.

Risks of Not Filing Income Tax and Registering for GST

gnoring income tax filing and GST registration can lead to serious problems for you and your business. Here’s what could happen:

1. Penalties and Fines

  • Income Tax: If you don’t file your income tax, you could face heavy penalties and interest on unpaid taxes. The longer you delay, the more you have to pay.
  • GST: Not registering or filing GST on time can lead to penalties. The penalty is typically 10% of the tax amount, with a minimum of ₹10,000. For intentional evasion, it can go up to 100% of the tax due.

2. Legal Trouble

Both income tax and GST compliance are legal requirements. Failing to follow these rules can result in notices, audits, or even prosecution. Severe cases might lead to the seizure of assets or business closure.

3. Loss of Credibility

Without filing taxes or registering for GST:

  • Your business may lose credibility with customers, clients, and vendors.
  • It can be harder to work with bigger companies or participate in government tenders.
  • Banks and financial institutions may not trust your business, making it difficult to get loans or funding.

4. Missed Tax Benefits

  • Income Tax: You can’t claim refunds or carry forward losses, which could save you money in the long run.
  • GST: Without GST registration, you lose the chance to claim input tax credit, meaning you’ll pay higher taxes on your purchases.

5. Restricted Growth

  • You might miss out on expanding your business to new markets, especially interstate sales, as GST registration is required for such transactions.
  • Non-compliance could limit partnerships or collaborations, as many companies only work with tax-compliant businesses.

6. Cascading Taxes

Without GST, you may face double taxation or cascading taxes, increasing the cost of goods or services. This could make your products more expensive than competitors who comply with GST.

7. Audits and Investigations

  • If authorities discover your non-compliance, they can investigate your financial records.
  • Audits can be time-consuming and disrupt your business operations.

Conclusion

Filing income tax and registering for GST are not just about following rules—they also offer many benefits. They help you save on taxes, improve your business’s reputation, and open up opportunities to grow. By staying compliant, you’re building a strong foundation for your financial future and contributing to the country’s progress. By avoiding income tax filing and GST registration, you put your business at risk of financial penalties, legal action, and missed opportunities. Compliance not only protects your business but also helps it grow and thrive in a competitive market. It’s better to stay on the right side of the law and enjoy the benefits of being tax-compliant.