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).

Consequences of Not Filing ITR on Time

If you are mandated to file an Income Tax Return (ITR) and miss the deadline, you can still file your tax return as a belated ITR. While it is possible to file a belated ITR, it is important to be aware of the penalties and potential complications that can arise from not filing your ITR on time.  However, filing a belated ITR has several consequences, including penalties and the loss of certain benefits.

• Penalty Amount : A penalty of ₹5,000 is imposed if the ITR is filed after the deadline (July 31, 2023, for the Financial year 2023-24). If your taxable income is below ₹5 lakh, the penalty amount will not exceed ₹1,000.
• Interest on Tax Due : If you had a tax liability and did not file the ITR on time, a penal interest of 1% per month or part of the month on the outstanding tax amount will be levied from the due date until the date of filing the return.
• Loss of Carry Forward of Losses : You cannot carry forward certain losses (e.g., business loss, capital loss) to future years if you do not file the ITR by the due date.
• Delay in Receiving Refund : If you are due a tax refund, filing the ITR late will delay the processing of your refund, resulting in a longer wait for the refund amount.
• Reduced Time for Revision : The time available to revise a belated ITR is less compared to an ITR filed on time. This can be problematic if you later discover errors or omissions in your filed return.
• Ineligibility for Certain Deductions You may lose the eligibility to claim certain deductions if you do not file the ITR within the due date.
• Increased Scrutiny and Notices: Late filing may attract scrutiny and notices from the Income Tax Department, leading to potential audits and additional compliance requirements.

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