Do I file ITR if I earn less than Rs 12 lakh? Avoid these common mistakes

Filing an ITR is crucial not just for compliance, but also to take advantage of available tax rebates and avoid penalties.

Filing an Income Tax Return (ITR) is a crucial process for individuals earning taxable income. While the rules surrounding it may seem straightforward, certain conditions still compel you to file an ITR even if your income doesn’t cross the basic exemption limit. Here’s everything you need to know about when ITR filing is mandatory and the penalties associated with not complying.

 

Income Below the Exemption Limit: Do You Still Need to File?

Under India’s new tax regime, the basic exemption limit for individuals is set at Rs 3 lakh. This means that if your income is less than Rs 3 lakh, you are not obligated to file an ITR. However, certain conditions can make it mandatory, even if your income falls below this threshold.

 

 

Key Factors to Consider:

• If your gross total income exceeds the exemption limit after applying deductions or exemptions, filing an ITR becomes compulsory.
• If you’ve received substantial deposits in your savings account (Rs 50 lakh or more) or current account (Rs 1 crore or more), you are required to file an ITR regardless of your income.
• For taxpayers with professional receipts exceeding Rs 10 lakh or a business turnover surpassing Rs 60 lakh, an ITR filing is mandatory.
• In addition to these conditions, foreign travel expenses exceeding Rs 2 lakh or electricity bills exceeding Rs 1 lakh in a year trigger the requirement to file an ITR, irrespective of your income.

 

Can you stop filing ITR if your income is below Rs 12 lakh?

 If an individual’s income exceeds the basic exemption limit before deductions, filing an income tax return (ITR) is mandatory, with penalties for non-compliance. The exemption limit depends on the tax regime opted and the individual’s age. 

 

Sanjay Basu, Founding Partner, AQUILAW explains with the following example:

For example, Mr. Rajiv (42 years) earns Rs 4.5 lakh annually and the amount of HRA exemption available to him is Rs 1 Lakh and he has paid LIC premium of Rs 20,000 (eligible for deduction under section 80C). After HRA exemption of Rs 1 lakh and applying a standard deduction of Rs 50,000, his taxable income is Rs 3 lakh, which exceeds the basic exemption limit under the old tax regime, requiring ITR filing. If he were over 60 years of age, ITR filing would be optional. Under the new regime, his taxable income is Rs 4 lakh, making ITR filing mandatory.

 

"Filing an ITR is mandatory if your gross total income exceeds the basic exemption limit, not based on a specific figure like Rs 12 lakh. For the Financial Year (FY) 2023-24 (Assessment Year 2024-25), under the new tax regime, the basic exemption limit is Rs 3 lakh for all individuals. {Basic exemption for FY24-25 under new regime is Rs 3 lakh while it has been revised in this year's budget to Rs4 lakh effective FY25-26}.

 

Under the old tax regime, it varies: Rs 2.5 lakh for individuals below 60 years, Rs 3 lakh for those between 60 and 80 years, and Rs 5 lakh for those above 80 years. If your gross total income is below these limits, you are generally not required to file an ITR. However, certain conditions mandate filing even if your income is below the exemption limit. For instance, if you have deposited more than Rs 50 lakh in one or more savings accounts in the previous financial year, you must file an ITR," said Amit Bansal, Partner, Singhania & Co.

 

2. Claiming the Section 87A Rebate: Is ITR Filing Compulsory?

 

One of the key reasons to file an ITR is to claim the rebate under Section 87A, which is available to resident individuals whose total income does not exceed Rs 12 lakh under the new tax regime. 

 

For example, if your salary is Rs 12,75,000, after a standard deduction of Rs 75,000, your net taxable income would be Rs 12 lakh. By filing an ITR, you can claim the Section 87A rebate, thereby reducing your tax liability to zero.

 

Amit Bansal, Partner, Singhania & Co explains with an example: 

Your gross total income is Rs 6.5 lakh and you claim deductions of Rs 1.5 lakh under Section 80C, your net taxable income becomes Rs 5 lakh. By filing your ITR, you can claim the rebate under Section 87A, reducing your tax liability to zero.

 

Further, in new regime, if your salary is Rs 7,75,000 then after the standard deduction of 75,000, your net taxable income is Rs 7 lakh. By filing the ITR, you can claim the rebate under section 87A, thereby reducing your tax liability to zero. 

 

"Majority of taxpayers are unaware that an ITR has to be filed if one wishes to claim a rebate under section 87A, individuals earning up to ₹5 lakh under the old regime and Rs 7 lakh under the new regime can benefit from a rebate of ₹12,500, which effectively reduces their tax liability to zero. But if no ITR is filed -one stands to completely lose this benefit," said  Siddartha Karnani, Partner, King Stubb & Kasiva, Advocates and Attorneys.

 

 When must taxpayers file an ITR despite income below the basic exemption limit?

 

• Certain conditions require you to file an ITR even if your income is below the basic exemption limit. Bansal explain in detail:
• High-Value Transactions: Depositing over Rs 50 lakh in savings accounts or Rs 1 crore in current accounts in a financial year necessitates ITR filing. 
• Professional or Business Receipts: Gross receipts exceeding Rs 10 lakh for professionals or sales turnover over Rs 60 lakh for businesses require ITR filing.
• High Expenditure: Paying electricity bills over Rs 1 lakh or incurring foreign travel expenses exceeding Rs 2 lakh in a financial year mandates filing.
• TDS/TCS Threshold: If your Tax Deducted at Source (TDS) or Tax Collected at Source (TCS) is Rs 25,000 or more (Rs 50,000 for senior citizens), you must file an ITR.
• Foreign Assets: Owning foreign assets, being a beneficiary of foreign assets, or having signing authority in foreign accounts requires ITR filing, regardless of income level.

 

Example:

 

If you paid Rs 2.5 lakh for a foreign trip during the financial year, even with an income below the exemption limit, you're required to file an ITR due to the specified expenditure threshold.

 

Filing ITR Despite Low Income – A Hidden Compliance Trap

"Even individuals with income below the exemption limit must file returns under certain circumstances, such as substantial bank transactions, foreign travel expenses, or holding foreign assets. These conditions often catch unsuspecting taxpayers off guard, leading to penalties or scrutiny. More emphasis needs to be paid to simplify and better publicize these specific criteria," said  Karnani.

 

Penalties for Non-Filing of ITR

Failing to file your ITR by the due date may result in penalties. Under Section 234F of the Income Tax Act, individuals who miss the filing deadline face the following consequences:

 

Late Filing Penalties: If you file after the due date but before December 31, a penalty of Rs 5,000 will be levied. If the ITR is filed after December 31, the penalty increases to Rs 10,000.

 

Penalty for Lower Income Individuals: For individuals with total income up to Rs 5 lakh, the maximum penalty is Rs 1,000.

 

It’s important to note that interest of 1% per month will also be charged on the tax due for late filings. If the ITR is filed after significant delays (12, 24, or 36 months), the penalty can go up to 70% of the tax payable, and in severe cases, individuals may even face imprisonment if assessment procedures have already commenced.

 

Example: If your total income is Rs 4.5 lakh and you miss the filing deadline, a penalty of Rs 1,000 may apply if you file before December 31. But the penalty could rise to Rs 5,000 if you file later.