Mandatory ITR Filing regardless the Level of Income

Why you should file ITR even if your income is less than INR 2.5 Lakhs ?

While it may not be mandatory to file an ITR if your net taxable turnover is ₹2.5 lakhs or below,  Filing an Income Tax Return (ITR) in India is not compulsory for everyone, especially if your net taxable turnover is below the threshold limit (currently ₹2.5 lakhs for individuals below 60 years). However, there are several reasons why it might be beneficial to file an ITR even if your income is below the taxable limit:  there are significant advantages to doing so. These include claiming tax refunds, carrying forward deductions, and improving your financial documentation for loans, visas, and other purposes. Filing an ITR demonstrates financial responsibility and can provide benefits that extend beyond the immediate tax implications.  Following Reasons to File an ITR Even with a Net Taxable Income of ₹2.5 Lakhs

• Claim a Tax Refund: If TDS has been deducted from your income throughout the year but your final tax liability is less than the TDS deducted, you can file an ITR to claim a refund of the excess TDS. Organizations may deduct TDS for payments made to freelancers or consultants. Filing a Nil ITR allows them to claim a refund for the TDS deducted if their income is below the taxable threshold.
• Carry Forward Certain Deductions If you have deductions like HRA that exceed the limit, filing an ITR allows you to carry forward these deductions to the next financial year.
• Loan Applications: Banks and financial institutions often require proof of income when processing loan applications. An ITR serves as a reliable document to substantiate your income, enhancing your chances of securing a loan.
• Filing ITR is mandatory for individuals who own a foreign asset, even if their income is below the taxable threshold. This helps in compliance with the reporting requirements of foreign assets and income.
• Visa Applications: Many countries require proof of income for visa applications. An ITR can serve as proof of your financial stability and income when applying for visas.
• Financial Record: Filing an ITR helps maintain a record of your financial history. This can be useful for future financial planning and decision-making. For self-employed individuals or freelancers, an ITR serves as proof of income and can be crucial for various financial and legal purposes. Regularly filing ITRs can improve your credit score, which can be beneficial for obtaining credit cards and loans.

Mandatory ITR Filing regardless the Level of Income

Even if your income is below the taxable threshold, you may still be required to file an ITR if you meet any of the above criteria. In the Following case regardless of their income level, there are specific instances where an individual must file their Income Tax Return (ITR) in India.

• Professional Income: If the gross receipts from the profession exceed ₹10 lakh in a financial year.
• High Expenditure: If an individual has incurred an expenditure exceeding ₹2 lakh on foreign travel for themselves or any other person. If an individual has incurred an expenditure exceeding ₹1 lakh toward electricity payment in a financial year. If an individual is a beneficial owner or beneficiary of any asset (including financial interest in any entity) located outside India. if an individual is a signatory to any account located outside India.
• High-Value Transactions: If an individual has deposited more than ₹1 crore in one or more current accounts. If an individual has deposited more than ₹50 lakh in one or more savings accounts.
• TDS / TCS: In case Senior Citizens: If TDS/TCS of ₹50,000 or more has been deducted in FY 2023-24 (FY 2023-24) for individuals aged 60 years or above. Other case : If TDS/TCS of ₹25,000 or more has been deducted in FY 2023-24 (FY 2023-24).

Filing a ITR provides multiple benefits beyond just tax compliance. It can serve as proof of financial stability and address, facilitate loan and visa applications, and ensure compliance with mandatory reporting requirements, it allows for the carry-forward of losses and the claiming of TDS refunds, making it a prudent practice even for individuals with income below the taxable threshold.

ITR Filing is Mandatory total income exceeds the basic exemption limit 

Mandatory ITR Filing: Income Tax Return (ITR) filing is mandatory if your total income exceeds the basic exemption limit, even if your final tax liability is zero due to tax rebates. The basic exemption limits are as follows:

• General Taxpayers: ₹2.5 lakh
• Senior Citizens (60-79 years): ₹3 lakh
• Very Senior Citizens (80 years and above): ₹5 lakh

What is Tax Rebate u/s 87A?

Section 87A of the Income Tax Act provides a tax rebate for individuals whose total income is up to ₹5 lakh. This rebate is available to resident individuals whose total income does not exceed ₹5 lakh. The maximum rebate available under Section 87A is ₹12,500. If the total income is ₹5 lakh or less, the rebate ensures that the tax liability becomes zero, as the rebate amount (₹12,500) covers the entire tax payable on an income up to ₹5 lakh.

For individuals with a total income of ₹5 lakh or below, no tax is payable after applying the rebate under Section 87A. However, if your income exceeds ₹5 lakh, the rebate is not applicable, and you will have to pay tax as per the applicable slab rates.

Even if no tax is payable due to the rebate, individuals must file their ITR if their total income exceeds the basic exemption limit. Since the final tax liability is zero due to the rebate, no tax needs to be paid, but the individual still needs to file an ITR if their income exceeds ₹2.5 lakh.

Filing an Income Tax Return is mandatory if your total income exceeds the basic exemption limit. However, the Tax rebate u/s 87A ensures that individuals with a total income of up to ₹5 lakh do not have to pay any tax. Despite this rebate, the requirement to file an ITR remains for those with incomes above the exemption threshold, ensuring compliance with tax regulations.

A tax rebate on an income of Rs 7 lakh has been introduced in the new tax regime (applicable for FY 2023-24).

ITR filing utilities not allowing the rebate u/s 87A for various Special Rate Incomes like STCG

Issue concerning the Income Tax Return utility, specifically in relation to Section 87A. The recent update to the ITR filing utility, effective from 5th July 2024, does not correctly implement the rebate provisions as outlined u/s 87A of the Income Tax Act, post-amendment by the Finance Act 2023.

1. Pre-Amendment Provision: Before the amendment by the Finance Act 2023, Section 87A provided that an individual resident in India with a total income not exceeding INR 500,000 was entitled to a rebate of 100% of the income tax or INR 12,500, whichever is less.
2. Post-Amendment Provision: The Finance Act, 2023, introduced a proviso to Section 87A, effective from 1st April 2024, which states:

• For assessees with income chargeable U/s 115BAC(1A) and total income not exceeding INR 700,000, a rebate of 100% of income tax or INR 25,000, whichever is less, is available.
• For total income exceeding INR 700,000, the rebate is calculated as the amount by which the income tax payable exceeds the excess income over INR 700,000.

3. Taxpayers under the old regime with income up to INR 5,00,000 and under the new regime with income up to Rs. 7,00,000 should be eligible for a rebate of INR 12,500 and INR 25,000 respectively, effectively exempting them from paying any income tax.
4. According to Sec 112A(6), the rebate under Section 87A is not available for long-term capital gains on equity shares or equity-oriented mutual funds taxed at 10%.
5. The new ITR filing utility incorrectly denies the Sec 87A rebate for various incomes taxable at special rates, including short-term capital gains on equity shares/mutual funds taxed at 15% U/s 111A. Other incomes taxable at special rates do not impose such restrictions on the Section 87A rebate.

This discrepancy in the Income Tax Return utility is causing significant inconvenience and potential financial strain for taxpayers eligible for the rebate but unable to claim it due to the faulty utility. Income Tax dept immediate rectification of the Income Tax Return utility to ensure accurate implementation of Section 87A as per the amended provisions.

To avoid these consequences, it is advisable to file your ITR within the stipulated deadlines