With the tax filing season now here, many are wondering whether they need to file an Income Tax Return (ITR) if their income falls below the taxable threshold.
While the law does not require individuals earning below the basic exemption limit to file returns, submitting a Nil Return can still offer several benefits, including maintaining a financial record.
What Is NIL Income Tax Return?
A Nil Return is filed when an individual's income remains below the level at which tax becomes payable and their tax liability for the financial year is zero. Under the Income-tax Act, 1961, filing a return is generally not mandatory if income is below the prescribed exemption limit. However, many taxpayers choose to file returns voluntarily for documentation purposes.
What Is The Basic Exemption Limit?
The exemption limit varies depending on the tax regime chosen by the taxpayer.
Under the new tax regime, which continues to be the default option, annual income of up to Rs 4 lakh is exempt from tax. Income between Rs 4 lakh and Rs 8 lakh is taxed at 5%, while higher slabs attract progressively higher tax rates, reaching 30% for income above Rs 24 lakh.
Under the old tax regime, the basic exemption limit for individuals remains Rs 2.5 lakh. Income between Rs 2.5 lakh and Rs 5 lakh is taxed at 5%, income from Rs 5 lakh to Rs 10 lakh is taxed at 20%, and income above Rs 10 lakh attracts a 30% tax rate.
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Is Filing An ITR Mandatory Below The Exemption Limit?
According to income tax rules, individuals whose taxable income remains below the applicable exemption limit are generally not required to file an ITR. In such cases, there is no legal obligation to submit a return since no tax is payable. However, individuals often file ITRs even when their taxable income is less than the basic exemption limit.
Why Filing A NIL Return Can Still Be Useful
One of the key advantages of filing a Nil Return is that it serves as an official record of income. ITR acknowledgements are frequently sought while applying for visas, loans, credit cards and other financial services.
Another important reason is claiming tax refunds. In some cases, tax may have been deducted at source (TDS) even though the taxpayer's final taxable income falls below the exemption limit after accounting for deductions and exemptions. Filing an ITR is necessary to claim such refunds.
When Must You File ITR Even If Income Is Below The Exemption Limit?
Savings Account Deposits
If a person deposits Rs 50 lakh or more in savings accounts during the previous financial year.
Current Account Deposits
If an individual deposits Rs 1 crore or more in current accounts in a commercial or cooperative bank within a financial year. It must be noted that the rule does not apply to businesses.
Sales/Business Turnover
If gross receipts or total annual sales turnover exceed Rs 60 lakh.
Professional Income
If a person's professional income crosses Rs 10 lakh in the previous financial year.
Electricity Bill
If electricity bills paid exceed Rs 1 lakh, either in a single bill or cumulatively, within a financial year.
TDS/TCS Deductions
If Tax Deducted at Source (TDS) or Tax Collected at Source (TCS) amounts to Rs 25,000 or more. For senior citizens, this threshold is higher at Rs 50,000.
Foreign Assets
If an individual owns or is a beneficiary of any foreign asset or holds signing authority in an account outside India.
Foreign Travel Expenditure
If an individual spends more than Rs 2 lakh on foreign travel for themselves or any other person.
Carrying Forward Losses (Section 139(3))
To carry forward losses, Section 139(3) mandates filing of return within the due dates specified under Section 139(1). (Note: Losses from house property and unabsorbed depreciation can be carried forward even if the return is not filed before the due date.)
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