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When you have to mandatorily file returns even if income is not taxable

There are specific circumstances where filing an ITR becomes mandatory, even if there's no tax to be paid.

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A file photo of people filing their income tax returns in New Delhi

Sunainaa Chadha New Delhi
The Income Tax department of India has received over 10 million income tax returns for last fiscal till 26 June 2023. The 1 million milestone has been achieved 12 days early this year compared to the corresponding period in the preceding year. 

An ITR is a form that an individual is supposed to fill out to get several benefits from it. This form has information about the person’s taxes to be paid during a financial year and his income. An individual whose annual income is less than Rs 2,50,000 is exempted from filing ITRs,  as he/she do not fall in the tax bracket. But if they file ITRs even when their income is below Rs 2,50,0000 it is termed ‘Nil Return’. Although it is not mandatory to file nil returns, there are many benefits to filing nil returns.

"Filing an Income Tax Return even when the income is not taxable has many advantages as it serves proof of your income. It can help you claim tax refund, carry forward losses, obtain loan, secure visa approval, and apply for government benefit(s). Also, ITR is an important proof of income for awarding compensation in the cases of accidental death or disability from an accident. Therefore, it is advisable to file ITR without any annual break," said Vipul Jai, Partner, PSL Advocates & Solicitors

Here are the many reasons why one should file a tax return even if they do not fall in the tax bracket:

Capital loss offset: Filing ITR can help a taxpayer allow carry forward of losses to future years. The same can be offset against one’s income and future income, said Maneet Pal Singh, Partner, I.P. Pasricha & Co. 

Loan or Credit Card Applications: In order to check creditworthiness of a loan applicant, financial institutions ask for the Income Tax Return of the applicant to be secure while disbursing loan.

Refund claims: Taxpayer seeking refund of taxes deducted on his income where no taxability arises can claim refund only if he/she files ITR. " If excess tax has been deducted from your income, either through Tax Deducted at Source (TDS) or via advance tax, the only way to claim a refund is by filing an ITR," said Ankit Jain, Partner, Ved Jain & Associates.

Visa procedures: Sometimes, most embassies require ITR documents whilst applying for visa.  Countries such as the United States, the United Kingdom, and Canada often require copies of tax returns to establish your financial stability when applying for a visa. Even passport applications accept nil ITR as valid proof of address.

Insurance Policies: If you're applying for a high-value life insurance policy, you may be asked to present your income tax returns, said Jain.

Bank TDS: Banks may deduct TDS on interest on deposits. The TDS refund can be claimed by filing nil ITR.

Government Tenders: Some government tender applications require you to show tax return receipts from the previous five years, confirming your adherence to statutory obligations.

Freelancers and the Self-Employed: A few organisations may deduct the TDS of people working as consultants or freelancers while disbursing their payment. They need to file nil ITR to claim a TDS refund when they don’t fall in the tax bracket. "For individuals who are self-employed, in partnerships, or freelancing, ITRs usually serve as the primary evidence of income and tax payments," said Jain.

Despite these benefits, there are specific circumstances where filing an ITR becomes mandatory, even if there's no tax to be paid, explains Jain. These are as follows:

Income Exceeding Exemption: If the gross total income, before any deductions under sections 80C to 80U, surpasses the basic exemption limit, you are obligated by law to file an ITR. The limits are set at Rs 2,50,000 for individuals below 60, Rs 3,00,000 for those between 60 and 80, and Rs 5,00,000 for individuals above 80.

Capital Gain Reinvestment: If you have claimed a deduction under Section 54/54F for a residential house purchase, or under Section 54EC for notified bonds, you must file an ITR.

Bank Transactions: If a person has deposited over Rs 1 crore in a bank account or maintains a balance exceeding Rs 50 lakh in a year, he is obliged to file a tax return.

Receipts from Business or Profession: An individual must file a tax return if their total turnover from business exceeds Rs 60 lakh or receipts from profession exceed Rs 10 lakh.

Specific Expenditures: If your annual expenditure on foreign travel crosses Rs 2 lakh, or if your electricity bill exceeds Rs 1 lakh, it is mandatory to file an ITR.

Foreign asset: Filing ITR is mandatory for individuals who own a foreign asset even when their income is below the threshold of Rs 2.5 lakh.


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First Published: Jun 27 2023 | 11:46 AM IST

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