File income tax return even if income is below exemption limit. Here's why

ITR Filing: For a variety of reasons, it is advisable to file a tax return, even when your taxable income is lower than this threshold. Read on to find benefits of filing ITR even if income is not taxable

File income tax return even if income is below exemption limit. Here's why


New Delhi: Income tax return (ITR) filing is one of the most important financial tasks of the years. A person has to file Income Tax Returns (ITR) if they have a gross total income exceeding the tax exemption limit. The last date to file an income tax return for the financial year 2020-21 or assessment year (AY) 2021-22 is September 30, 2021. 

A resident individual below 60 years of age earning up to Rs 2.5 lakh per annum is exempt from income tax.  For individuals aged above 60 years but less than 80 years (senior citizens), this exemption limit is Rs 3 lakh and for individuals aged above 80 years (super senior citizens), the exemption limit is Rs 5 lakh. 

If your income is below the tax exemption limit and you are not required to file ITR by law, it is still advisable that you still file your tax return as it has several benefits.

File ITR even if the income is below the exemption limit. Here's why

1. Loan eligibility: If you are applying for a loan, banks check the eligibility which depends upon one's income. They also decide the quantum of loan on the basis of the income which can be established through filed income tax returns. ITR documents are accepted by various institutions for easier loan processing. Generally, banks ask for a three-year ITR while processing a loan for their customers. ITR will be a very helpful document for you if you are planning to buy a car or a house, or are looking for a personal loan.

2. Address and Income proof: The Income Tax Assessment Order can be used as a valid address proof. It can even be used for Aadhaar Card. Generally, employers issue Form 16 to their employees and it acts as an individual's proof of income. The ITR filing document serves as authentic income proof for self-employed people or freelancers. During the financial year, an individual's detailed break-down of income and expenses are given in it

3. Visa approval: For issuing a visa to an individual, most countries demand ITR among the documents. It helps if an individual is a tax-compliant citizen of the country. It also gives an insight to the visa processing officials about your current financial condition and income levels. So, even if your income is below the taxable bracket, file your ITR as it may ease your visa processing, approval.

4. Tax refund: If an individual files an ITR, they can save taxes on the income from instruments like term deposits. Tax can be also be saved on dividend income. An individual can claim the tax outgo through ITR refunds as these instruments are liable for taxes. One can claim tax refunds and get the money back that is deducted at the source if the total gross income from different sources is above Rs 2.5 lakh. This is applicable if you have made investments in a manner that your net income is below Rs 2.5 lakh in a year.

5. Claim losses: In order to claim specified losses for an individual taxpayer, income tax return filing within the due date is mandatory. This loss can be in the form of capital gains, business or profession. Income tax rules allow carry-forward losses to set them off against capital gains only to those who file ITR in the relevant assessment year.

It is worth adding that some individuals with income below the taxable bracket may still be obliged to file the income-tax return in certain cases specified in the law as under:

  • Individual holding any asset (including financial interest in any entity) located outside India; or
  • Individual having signing authority in any account located outside India; or
  • Individual being beneficiary of any asset (including financial interest in any entity) located outside India.
  • Individual has deposited a sum of more than Rs 1 crore in a financial year in any current account held with a bank or a co-operative bank.
  • Individual has made an expenditure on foreign travel of more than Rs 2 lakh in a financial year.
  • Individual has incurred electricity expenses of Rs 1 lakh or more in a financial year.

Income-tax return filing may also be required while availing any tax treaty relief, claiming refund of excess withheld taxes or while applying for a personal loan etc.

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