Why it’s a good idea to file I-T returns even if your income is not taxable

Malini is a homemaker, and her net yearly income is within the prescribed taxable limit.

In the financial year 2023-24, her bank deducted some income-tax from the interest payment on her term deposits and she wants to get back this tax deducted at source (TDS).

But she wonder – if she files her I-T return (ITR) to get the refund this year, will she have to file it every year thereafter?

There are many like Malini, who are not sure when it is necessary to file I-T returns and when it is optional. They do not understand the advantages of filing returns either. Some do not understand the consequences of not filing their I-T returns when it is mandatory.

So, is filing of I-T returns mandatory?

The law says that it is compulsory to file your I-T returns if your income is more than the basic exemption limit. Hence, it is important to know the basic exemption limit applicable to you.

For individuals up to the age of 59, the exemption limit is Rs 2.5 lakh. For any income beyond this, they need to file I-T returns.

For senior citizens (aged 60-79), the limit increases to Rs 3 lakh.

For super senior citizens (aged 80 and above) the limit is Rs 5 lakh.

Exemption applies to gross income

It is important to note that the income amount should be calculated before factoring in the deductions allowed under Sections 80C to 80U and other exemptions under Section 10. Hence, what matters for the exemption limit is the gross income and not the net income taxable.

For example, if you are in the 60-79 age bracket, your gross income may be Rs 3.5 lakh but after the permitted deductions, the taxable income may be below Rs 3 lakh. Yet, you have to compulsorily file the returns.

Necessary for refund claim

Sometimes, your income may be below the threshold, as explained above. But banks or employers may deduct some tax at source while making payments.

In such cases, you can claim a refund on the excess tax deducted only by filing I-T returns.

Special circumstances

Those who live outside India but have assets or financial interest entities located in the country must also file ITR in India. Non-Resident Indians (NRIs) who earn or accrue more than Rs 2.5 lakh in India in a single financial year must file ITR in India.

(There are some more circumstances described under Section 139(1) of IT Act, which are not discussed here as these may not be applicable for most of the people.)

Advantages of filing ITR 

If you file your I-T returns regularly, it can be useful to show the genuineness of your income stream to financing institutions for any loan proposal. Getting your loan approved will be easier.

Any visa processing for employment abroad will be easier.

Besides enabling you to claim a refund in the current year, it may be useful to carry forward unabsorbed losses in some transactions, such as share investments, so that it can be appropriated in the next eight years.

Other aspects to know while filing ITR

There are different ITR forms for individuals, namely ITR 1 to ITR 4. Use the relevant form. Before filing the return, ensure the following documents are ready for the completion of the process:

• TDS certificates like Form 16 and 16A
• Interest-paid certificates
• Form 26AS (statement that provides details of any amount deducted as TDS or TCS from various sources of income)
• Capital gains statements
• Details of foreign assets
• Aadhaar and PAN details
• Bank account details

Penalty for late filing of ITR

Failing to submit your I-T returns within the due date will attract a penalty. Other than penalties, the I-T department can take legal action against you if you continuously miss the deadlines. 

ITR forms

ITR-1 (SAHAJ): Applicable to individuals

This form is applicable for a Resident (other than Not Ordinarily Resident), or RNOR, individual with a total income of up to Rs 50 lakh from any of the following sources:

• Salary / pension
• One house property
• Other sources (interest, family pension, dividend, etc.)
• Agricultural income up to Rs 5,000

ITR-2: Applicable to individuals and HUFs

• Those not having income under the head “Profits and Gains of Business or Profession”
• Those not eligible for filing ITR-1

ITR 3: Applicable to individuals and HUFs

• Those having income under the head of “Profits and Gains of Business or Profession”
• Those not eligible for filing ITR-1, ITR-2 or ITR-4

ITR 4 (SUGAM): Applicable to individuals, HUFs, and firms (other than LLP)

This is applicable to an individual or Hindu Undivided Family (HUF), who is an RNOR or a firm (other than LLP), a resident having total income up to Rs 50 lakh and having income from business or profession, which is computed on a presumptive basis and income from any of the following sources:

• Salary / pension
• One house property
• Other sources (interest, family pension, dividend, etc.)
• Agricultural income up to Rs 5,000

(The views expressed here are the author's, and do not constitute investment advice.)