Income Tax Return Filing: Should You File An ITR Despite Not Having An Income Tax Liability?

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Monika Ahuja
Monika Ahuja
I have a specialization in finance but I have written for several domains including real estate, automobile, home decor, e-commerce etc. I worked in sales for over 4 years, before choosing to become a content writer. As a writer, I have worked closely with several national and international brands and have handled their social media and website content for over 3 years. With my diverse experience in the field of writing, I am looking forward to creating some engaging content for my readers.

Highlights:

  • Read this article to clear up any confusion surrounding income tax return filing.
  • Learn who must file an ITR, irrespective of their tax liability or deductions.
  • Learn about the income-based and non-income-based criteria for filing ITRs.

Now that it’s time to file the Income Tax Returns, a basic question that arises is Who must file a tax return? Filing an income tax return (ITR) can confuse most taxpayers, especially if they believe they have no tax liability due to tax deductions at the source. However, it is important to understand that the obligation to file an ITR is different from the obligation to pay taxes. So who is eligible to file returns under Section 139 (1) of the Income Tax Act? Let’s find out.

All Indian citizens and individuals who fall under the following criteria must file a tax return regardless of tax deductions at source.

  • If your Gross income is more than Rs. 2.5 lakhs after applying deductions under various Sections of the Income Tax Act.
  • All Companies and firms who have earned an income, regardless of profits or losses made in the last financial year
  • Any individual who wants to claim any refund from the income tax department
  • If your long-term capital gains (LTCG) are more than Rs. 2.5 lakh.
  • Any Resident Indian with an asset or a business interest in any foreign country should file income tax returns (not applicable for NRIs).
  • If you receive any income from a trust or religious institution, educational institution, trade union, research organization or a non-profit organization.
  • If you want to apply for a bank loan

The requirement to file an ITR is based on the individual’s total income from all sources, excluding various deductions available under Chapter VIA, which comprises mainly Section 80C, 80 CCD, 80D, 80 G, 80TTA, 80 TTB of the Income Tax Act 1956. These deductions include life insurance premiums, health insurance premiums, contributions to EPF, PPF, and NPS accounts, bank interest, tuition fees, and home loan repayments. When filing a tax return, one must also mention all the exemptions from long-term capital gains under Sections 54, 54EC, 54F, etc.

Even if an individual has no tax liability due to deductions and rebates, they still need to file an ITR if their total taxable income exceeds the prescribed threshold. The basic threshold for income tax exemption is 2.50 lakhs for those under 60 years and 3 and 5 lakhs, respectively, for resident individuals between 60 and 80 and above 80 years. Even if you don’t have any tax liabilities after availing various deductions and rebates, you may still have to file your ITR if your cumulative taxable income exceeds the threshold prescribed. 

In addition to income-based criteria, some non-income criteria also require individuals to file an ITR. Residents with a beneficial interest in any foreign asset or signing authority in an account outside India must file an ITR. This applies even if they have opened a bank account abroad and returned to India without closing it, leaving a minimal balance. 

The law also mandates the filing of ITR for those who have made investments in shares, bonds, or mutual fund units of foreign companies or employees with ESOPs of holding companies of their Indian employer. If you are a resident Indian and are the signing authority of a foreign account (other than NRIs), you should file income tax returns.

You must also file an ITR if you have made deposits exceeding one crore rupees in all current accounts combined or more than fifty lakh rupees in all savings accounts combined. Similarly, regardless of income, individuals engaged in business with a turnover exceeding sixty lakhs or professionals with a turnover exceeding ten lakh rupees must file an ITR.

If the total tax deducted from an individual’s income during the year exceeds 25,000 rupees (50,000 rupees for senior citizens), they are required to file an ITR. Furthermore, paying more than two lakhs for foreign travel or incurring expenses on electricity exceeding one lakh rupees in the previous year also obligates individuals to file an ITR. It is worth noting that the foreign travel payment can apply to non-family members, and the electricity connection does not need to be in the individual’s name. Renters who have paid more than one lakh rupees for electricity charges during the year will also have to file an ITR.

We hope the above discussion has offered you some clarity on whether or not you are eligible to file an ITR. So, if you fall under any of these above categories, get ready to file your return by 31 July 2023.

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