Tax season can seem daunting, but in India, you’re not required to file an Income Tax Return (ITR) if your income is below the basic exemption limit, which varies based on age and tax regime. Here’s a breakdown of the thresholds under the old regime:
- Individuals below 60 years: ₹2.5 lakh
- Senior citizens (aged 60 to 80 years): ₹3 lakh
- Super senior citizens (above 80 years): ₹5 lakh
Under the new tax regime, the filing threshold is a uniform ₹3 lakh for individuals, Hindu Undivided Families (HUFs), and other individuals (excluding companies and firms).
However, filing an ITR is mandatory if your total income exceeds the basic exemption limit. Additionally, certain types of income, such as capital gains or earnings from foreign assets, may necessitate filing an ITR even if your total income is below the exemption limit.
Specific Income Criteria for Filing ITR:
Capital Gains:
Even if your total income is below the limit, capital gains may require you to file an ITR. Capital gains, taxed separately, can push your taxable income beyond the exemption limit. Capital gains tax applies to the profit from the sale of capital assets like stocks, mutual funds, or real estate. Short-term capital gains (assets held for less than a year) are taxed at a flat rate based on the asset class, while long-term capital gains (assets held for more than a year) may qualify for exemptions or reduced rates. Accurate reporting of these gains necessitates filing an ITR.
Foreign Assets:
Foreign assets can also require filing an ITR, even if there is no taxable income in India. Resident Indians must declare their foreign assets using Schedule FA within their ITR forms. This includes bank accounts, investments (stocks, mutual funds), and real estate. Failure to disclose foreign assets can result in significant penalties, including fines and potential imprisonment.
Benefits of Filing an ITR:
Tax Refunds:
Filing an ITR is essential to claim tax refunds, such as excess tax deducted at source (TDS). If the total TDS deducted exceeds your actual tax liability, you can request a refund through your ITR. It also enables you to avail of tax deductions and exemptions, potentially lowering your tax liability and facilitating refunds.
Understanding Nil ITR:
What is a Nil ITR?
A Nil ITR is filed when the taxpayer’s income does not exceed the taxable limit or when deductions offset all income, resulting in no tax liability. It officially informs the Income Tax Department about your financial status for the year, even if no tax was paid.
Benefits of Filing a Nil ITR:
- Claiming Tax Refunds: You can request a refund for excess TDS on earnings like bank interest.
- Visa Applications: Many countries require proof of income for visa applications, and a Nil ITR can serve as valid documentation.
- Carrying Forward Capital Losses: Filing a Nil ITR allows you to carry forward capital losses to offset against future capital gains, potentially reducing future tax liability.
- Loan Applications: Banks and financial institutions often require ITRs as proof of income for loan processing, and a Nil ITR can meet this requirement.
Filing a Nil ITR, though not mandatory for everyone, provides significant benefits and helps maintain a clear record with tax authorities.
