It's prudent to file nil ITR even if your income is below Rs 2.5 lakh

Filing income tax return will prove handy while applying for a loan, insurance cover, or a visa

Even if your taxable income falls below the threshold level from which income tax is levied, you should still file a return. Such a return is called nil income-tax return (ITR). Filing it conveys to the Income-Tax (I-T) Department that you did not pay tax that year as your income was low.

In the case of an individual or a Hindu Undivided Family (HUF), filing a return is not mandatory if the taxable income is below Rs 2.50 lakh.

Naveen Wadhwa, deputy general manager, Taxmann, says, “While filing a nil ITR is not mandatory, doing so voluntarily carries numerous benefits.”

When filing ITR is mandatory

In many circumstances, filing a return is mandatory even though the taxpayer’s income may be below the exemption level.

Gopal Bohra, partner, N.A. Shah Associates says, “A taxpayer must compulsorily file ITR if she/he has paid an electricity bill of Rs 1 lakh or more, incurred foreign travel expenditure of Rs 2 lakh or more, or deposited Rs 1 crore or more in one or more current accounts of banks.”

Taxpayers also need to file a nil return even if their income is below the exemption limit, if total sales, turnover, or gross receipts of their business exceed Rs 60 lakh; total gross receipts from profession exceed Rs 10 lakh; the aggregate of tax deducted at source (TDS) or tax collected at source (TCS) is Rs 25,000 (Rs 50,000 for senior citizens); or if the deposits in one or more savings bank accounts, in aggregate, are Rs 50 lakh or more.

If an ordinarily resident taxpayer has foreign assets or income, it becomes mandatory for her/him to file a tax return disclosing assets and income.

Myriad benefits of filing nil ITR

Filing a nil ITR carries several benefits. Wadhwa says, “You should file the ITR as it is the only proof of income earned by you during the relevant financial year.”

Doing so helps if you apply for a loan. Maneet Pal Singh, partner, I.P. Pasricha & Co says, “It is considered a valid document for applying for a loan or for buying life insurance.”

If you are entitled to a refund in a financial year, file an ITR to claim it, even if your income is below Rs 2.5 lakh.

Wadhwa says, “If you wish to apply for the visa of a country, one of the documents you must furnish is a copy of your ITR.”

Filing an ITR is also essential for setting off losses incurred on other sources of income. Bohra says, “Nil return must be filed to claim a refund if tax has been deducted from your income, and to carry forward losses. These could be business or capital losses, incurred on the sale of shares, mutual funds, property, etc. which you want to set off against future profits and reduce tax liability.”

Timeline for filing nil ITR

Returns should be filed within the due dates specified under Section 139(1) of the I-T Act, which is July 31 for individuals and HUFs. Bohra says, “One can also file a belated return within the due dates specified under Section 139(4), which is March 31 of next year with payment of a late fee of Rs 1,000, provided the gross total income is less than Rs 5 lakh.”

There is no late filing fee under Section 234F for taxpayers where return filing is not mandatory. You can file the voluntary return belatedly by December 31.

Wadhwa says a taxpayer who wishes to carry forward losses must file ITR within the deadline prescribed for filing the original return.

Ensure accuracy

Even for filing nil ITR, the choice of the correct form depends on source of income. Singh says, “Collect various documents, such as Form 16/16A, details of capital gains, interest certificates, and proofs of deductions.”

Form 26AS, annual information statement (AIS) and taxpayer information summary (TIS) report will help you calculate and report income and deductions. Other details such as address, telephone number, and email address should be accurate.

ITR forms based on source of income

ITR 1: For those having income from salary, one house property, income from other sources (interest, etc), agricultural income up to Rs 5,000, and total income up to 50 lakh

ITR 2: For those having a total income of more than Rs 50 lakh, holding position of director in a company, holding investments in unlisted equity shares, having an income from sources outside India, or holding assets outside India

ITR 3: For those having business income, income from profession, or are partners in a firm

ITR 4: For resident individuals, HUFs, firm (other than Limited Liability Partnership) having business income or income from profession computed on presumptive basis

Source: N A Shah Associates and Co