Is Filing of Income Tax Return Compulsory?

Created on 30 Jun 2022

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Updated on 17 Feb 2024

Is Filing of Income Tax Return Compulsory

The only reason you're "exempt" from filing an ITR is because you're not earning enough. Get better at your job.

An Income Tax Return (ITR) is a form used to file your income sources and tax liability information to the Income Tax Department in India. As per the income tax laws, the return must be filed annually by an individual or business that earns any income during a financial year.

The income could be in the form of a salary, income from house property, business profits or income from a profession, capital gains, income earned through dividends, interests or other sources.

Such an individual must file an Income Tax Return if his total taxable income during a particular Financial Year exceeds the maximum amount not chargeable to tax. Any Financial Year (FY) in India starts on 1 April and ends on 31 March. The ideal time to start gathering documents for Income Tax Return filing is June.

Are you eager to know whether you should file an Income Tax Return in India?

Let’s understand when you must file an income tax return in India for the Financial Year 2024-25, i.e. 01 April 2024 to 31st March 2025.

Basis of Taxation

Any Individual / Hindu Undivided Family / Firm / Company / Others need to file income tax returns based on the following:

1. Income: An individual must file an income tax return if his total income exceeds the basic exemption limit. This Total Income is to be calculated considering His/her/Their total Income without giving effect to any tax savings investments

In any of the following situations (as per the Income Tax Act), you must file an Income Tax Return in India:

  • Your Gross Total Income (before allowing any tax savings deductions) exceeds ₹2.5 lakhs in FY 2024-25.

  • This limit is ₹3 lakhs for senior citizens (aged above 60 but less than 80) as per old tax regime and

  • ₹5 lakhs for super senior citizens (aged above 80).

2. Expenditure: An individual might be liable to pay taxes if they cross the threshold of expenditures in one or both of the following manners:

  • If the foreign travel expense is more than ₹2 lakh.

  • If the electricity consumption is more than ₹1 lakh

3. Assets: Return filing is mandatory:

  • If you are a resident individual in India and have an asset or financial interest in any organisation outside India.

  • If you are a resident and have signing authority in a foreign account. (Not applicable to NRIs).

  • You must file an income tax return when receiving income from any property. Such property must be held under a trust for charitable or religious purposes, a political party, a research association, news agency, educational or medical institution, trade union, a not-for-profit university or educational institution, a hospital, infrastructure debt fund, any authority, body or trust.

  • If you are a foreign company taking treaty benefits on transactions in India. Proof of return filing may also be required when applying for a loan or a visa.

4. Cash Deposits: Following individuals are liable to pay taxes based on the deposits made by them to various bank account types:

  • If the aggregate deposit in one or more savings bank accounts of the person is ₹50 lakhs or more during the relevant financial year

  • If he has deposited an amount (or aggregate of amount) exceeding ₹1 crore in one or more current accounts maintained with a banking company or a co-operative bank.

5. Receipts and TDS:

  • If total sales, turnover or gross receipt of the business exceeds ₹60 lakh during the year

  • If total gross receipt of profession exceeds ₹10 lakh during the year.

  • The total tax deducted and collected in case of a person during the year is ₹25,000 or more (₹50,000 in case of a resident senior citizen).

6. Income Tax Return Filing for NRIs:

  • Every NRI, whether his income exceeds ₹2.5 lakh or not, is required to file an income tax return in India. The limit is the same for all individuals. There is no higher threshold limit for senior citizens (Age 60 or more) or super-senior citizens (Age 80 or more).

  • Also, note that for an NRI, any income earned or arising in India will be taxable in India.

  • There is one more exception for the NRI taxpayers. Unlike the resident Indians, if there is a long-term or short-term capital gain, the non-residents are not eligible to benefit from the basic exemption limit. Hence, if the capital gains exceed ₹2.5 lakh, the NRI must file an income tax return.

7. Other Basis:

  • You are a company or a firm irrespective of whether you have income or loss during the financial year.

  • You want to claim an income tax refund.

  • You want to carry forward a loss under a head of income.

Why should I File Income Tax Return?

You know what? Many individuals seem to think that filing tax returns is voluntary and therefore dismiss it as unnecessary and burdensome.

Filing tax returns is an activity done annually and is seen as a moral and social duty of every responsible citizen of the country. It is the basis for the government to determine the amount and means of expenditure of the citizens and provides a platform for the people to claim refunds.

Apart from making you a responsible citizen, filing tax returns allows you to -

  • Claim tax deductions under several sections of the Income Tax Act to reduce your tax outgo.

  • Claim refunds on excess tax payments, particularly when TDS is subtracted from your income and the total taxes you are eligible to pay are less than the tax amount deducted.

  • Adjust your capital gains and losses. The Income Tax laws allow you to adjust capital losses against capital gains and carry forward capital loss for the next 8 consecutive financial years.

  • Avail a loan or get a credit card easily.

  • Smoothen your visa process while travelling overseas as many countries need proof of your regular income.

Documents required to file ITR

Having all the relevant documents handy before starting your Income Tax filing process is important. Here’s one list of the documents

  1. Bank and post office savings account passbook, PPF account passbook.

  2. Salary slips.

  3. Aadhar Card, PAN card

  4. Form-16 - TDS certificate issued to you by your employer to provide details of the salary paid to you and TDS deducted on it, if any Interest certificates from banks and post

  5. Form-16A, if TDS is deducted on payments other than salaries such as interest received from fixed deposits, recurring deposits etc., over the specified limits as per the current tax laws.

  6. Form-16B  from the buyer if you have sold a property, showing the TDS deducted on the amount paid to you.

  7. Form-16C  from your tenant, for providing the details of TDS deducted on the rent received by you, if any.

  8. Tax-saving investment proofs.

  9. Home loan statement from a bank.

Penalties for Non-Filing Income Tax Return

There are some legal consequences for late filing if you don’t file your Income Tax Return by the due date. The Departmental Officer may levy (charge) a penalty when you have not filed your return.

From FY 2018-19 onwards, if the taxpayer files an income tax return after the due date but before the 31st day of December, a penalty of up to ₹5,000 shall be paid. However, if the taxpayer’s income is below ₹5 lakhs, the penalty is ₹1,000.

If the taxpayer files an income tax return after the 31st day of December, a penalty of ₹10,000 shall be paid.

So, don’t you think it makes sense for everyone to file the Income Tax Return before the due date?

The Bottom line

The filing of ITR is an important obligation the law has on the taxpayers. The taxpayers must report their income and assets in ITR and pay applicable taxes within the stipulated timelines.

However, non-taxpayers can also file their ITRs even without the looming obligation to do so. While filing of ITR might have been a tedious process in the past, with digitisation, the benefits make it so not filing one’s returns seem like a mistake.

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Karan Chandwani

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The curious Finance & Tax Advisor! Karan has held executive positions in audits, finance & taxation.

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