Filing an income tax return (ITR) is mandatory for individuals whose total income is over ₹2.5 lakhs. However, it is recommended that people even with a lower total income should file tax returns even though it is not compulsory.
As per tax laws, an individual below 60 years earning less than ₹2.5 lakh per year is exempt from paying tax. For people above 60 years but less than 80 years, this limit is ₹3 lakh and for people above 80 years, it is ₹5 lakh.
Tax returns not only help in getting refunds but are used as documentation for a lot of things like acquiring a visa, applying for loans, etc. Filing a tax return even if your income is below the taxable limit helps you in such situations.
A tax return that you file even when your taxable income is below the exempt limit is known as a nil return. It shows that you did not pay taxes for the year.
Even if you are exempt from paying taxes, filing returns has multiple benefits. Let's discuss those:
1) Income proof: ITR returns serve as income proof for self-employed people. If you want to apply for a job later, it will help you determine your yearly income to your future employers or others depending on why you need it. It breaks down your income and expenses clearly.
2) Address Proof: ITRs can also be used as valid address proof instead of an Aadhar card, passport, or driving license.
3) Claiming refund: If you have made investments where your TDS is deducted, it can be used to claim a refund for the tax deducted at the source. This is only in case your total taxable income is less than the exempt limit.
4) Visa Approval: Most country's ask for ITRs of the previous 3 years in order to approve your Visa request. It shows that you are a tax-compliant citizen of your country. It also gives details of your current financial situation. Be it a work Visa or a tourist visa, most countries require submission of ITRs.
5) Loan approval: In order for you to get a loan for a car or a house or even personal loans, banks demand ITR statements to assess your financial stability. Especially if you are a self-employed individual, ITRs are a must to procure a loan.
There are also some scenarios, where you should file ITRs even when your taxable income is below the exempt limit. Let's look a few of those:
1) Filing ITR is necessary if your taxable income before deductions surpass the exempt limit.
2) It is also necessary if you have assets overseas.
3) Filling ITR becomes necessary if an individual has deposited ₹1 crore or more in one or more current accounts during the financial year.
4) It is necessary if an individual has spent ₹2 lakh or more on foreign travel for himself or any other person during the financial year.
5) It is also necessary if an individual has spent ₹1 lakh or more on electricity in a financial year.
So filing a tax return not only helps you keep a detailed record of your finances but can also be used in different situations as mentioned above.