It is a lesser-known fact that those earning an income in the FY 2022-23 below the exemption limit need not file their income tax returns (ITRs). However, the income tax regime chosen by an individual determines the basic exemption limit. In the old tax regime, the basic exemption limit for an individual in FY 2022-23 depends on their age.
However, in the new tax regime, the basic exemption limit is fixed at ₹3 lakh, regardless of the individual’s age. Though filing the ITR is not mandated for those relegated to the lower-income group, it makes sense to file the same.
Gopal Bohra, Partner - Direct Taxation, NA Shah Associates said, “An individual is not required to file an ITR if his income does not exceed the basic exemption limit. However, in certain cases, filing of the return is mandatory irrespective of income, whereas one during the previous year –
- Has deposited ₹1 crore or more in aggregate in one or more current accounts with a bank; or
- Has incurred expenditure in aggregate exceeding ₹2 lakhs on foreign travel; or
- Has incurred expenditure in aggregate exceeding ₹1 lakh towards consumption of electricity; or
- Holds as a beneficial owner or otherwise or is a beneficiary of any asset (including any financial interest in any entity) or has signing authority in any account located outside India.
Apart from the above mandatory requirement to file a tax return, it is advisable to file ITR if someone intends to apply for a bank loan or visa, to claim a refund of TDS, to carry forward any loss, etc.”
An ITR filed by taxpayers with zero tax liability is called “NIL ITR”. In certain situations, it is possible for the total tax liability to become zero after applying the rebate under Section 87A of the Income Tax Act, 1961. Even in these cases, the filed tax return would be referred to as a “NIL ITR”. The benefits of filing a “NIL ITR” include:
Escaping the brunt of TDS
There are so many times when investors forget to submit Form 15G/H which helps them in saving on the tax deducted at source (TDS), otherwise deducted by financial institutions. In the event that the form could not be filed on time for any reason, it is advisable to file a “NIL ITR" in order to claim the TDS amount as a refund.
When planning to travel abroad, visa authorities typically request the submission of income tax returns for the preceding years. This is necessary because the foreign country you intend to visit needs to verify your income level before granting a visa. Therefore, along with bank statements and other financial documents, it is necessary to provide ITRs during the visa application process. This may look like a futile process right now, though taxpayers will realise its importance when they gear up to study in foreign universities or secure a job abroad.
Providing evidence of all legitimate income through the submission of a “NIL ITR” can assist in establishing your credibility with foreign visa authorities, university boards, or other relevant entities. This approach can streamline the entire process, making it less time-consuming.
Ease of getting loans
The ITRs serve as an official document of income verification issued by the government of India. Furthermore, submitting ITRs to banks and other financial institutions can streamline the process of obtaining loans.
When applying for a loan, lending institutions assess the creditworthiness of the applicant before approving the loan amount. This evaluation involves conducting a thorough credit check, which includes requesting various financial, banking, and other statements and documents, including income tax returns (if available), employment or business verification, credit bureau reports, and other relevant sources. Therefore, having a valid income proof document such as a filed ITR can greatly support your loan application.
It is not that refraining from filing the ITR in case of low or no income would cause any trouble. However, filing a NIL ITR can ensure you unforeseen benefits that many may be unaware of.