The Central Board of Direct Taxes (CBDT) keeps amending or adding conditions on when it becomes mandatory to file income tax return (ITR).
Recently on April 21, 2022, the CBDT issued a circular, which added four new conditions related to business turnover, professional receipts, bank deposits and spending, which makes it mandatory to file ITR.
These conditions notified by the CBDT are applicable for Assessment Year (AY) 2022-23 onwards. Besides these few new conditions, there are various other existing conditions which make it mandatory to file ITR. However, even if you are not compulsorily required to file the ITR, still there are merits and benefits of filing the ITR.
Mandatory to file ITR
As per the Income Tax Act, 1961, an individual is required to file the income tax return (ITR) when the income exceeds the basic tax exemption limit.
For those below 60 years of age, the basic exemption limit is taxable income of up to Rs 2.50 lakh, and for those over 60 but below 80 years of age, the basic exemption limit is Rs 3 lakh. For very senior citizens (above 80 years of age), the basic exemption limit is Rs 5 lakh.
However, “While calculating basic exemption limit of Rs. 2.50 lakh, some of the exemption from capital gains under sections 54, 54B, 54D, 54EC, 54F, 54G, 54GA or 54GB of the Income Tax Act should not be included. In simple words, if the total income of a taxpayer before claiming the above exemptions is more than Rs 2.50 lakh, the person needs to mandatorily file the annual tax return,” said Yeeshu Sehgal, Head of Tax Markets, AKM Global, a tax and consulting firm.
Further, the law also provides for mandatory filing of tax returns in specific circumstances such as expenditure in excess of Rs 2 lakh on foreign travel, consumption of electricity costing above Rs 1 lakh in a financial year, and foreign income or assets, among others, even if the gross total income is less than the basic exemption limit. Deposit of more than Rs 1 crore in one or more current accounts maintained with either bank or cooperative bank in India during the year, makes it compulsory to file ITR.
Besides that, it is also mandatory to file ITR, “if an individual (other than a senior citizen and super senior citizen) has been subject to an aggregate amount of tax deducted at source (TDS) and tax collected at source (TCS) for Rs 25,000 or more. This limit of Rs 25,000 shall be considered as Rs 50,000 in case of senior citizens and super senior citizens,” added Sehgal.
Credit cards, loans, tax refunds, visa applications…all want your ITR
While it is mandatory to file ITR in certain cases, even if these conditions are not applicable to you, you may still file the ITR to your advantage. For instance, the only way to reclaim refund of excess taxes paid as TDS is by filing ITR on time.
Filing of return also becomes necessary if you wish to claim deduction for certain expenses or investments that qualify for deduction, but you missed to share it with your employer, and as a result, higher TDS was deducted from your salary.
Also, ITR filing is required to claim a refund of TDS against payments received by an individual, which may otherwise not be liable to be taxed.
If your income is more than the basic exemption limit, but below Rs 5 lakh you are eligible to claim rebate of up to Rs 12,500 under Section 87A.
One needs to file the return to carry forward losses and set off against future incomes. Sehgal says that income tax rules allow carry-forward losses to be set off against capital gains only to those who file their tax returns in the relevant assessment year.
On the other hand, ITR is a common prerequisite for applying for loans, credit cards and several other purposes. “Visa application approvals require an assessee to be tax-compliant, as these documents act as the applicant’s income proof,” said Deepak Jain, Chief Executive, TaxManager.in, a tax e-filing and compliance management portal. It is also mandatory for taxpayers (who have outstanding tax liabilities) to file ITR on time to avoid hefty penalties, Jain added further.
Besides that, “There are times when you need to present proof of address for official purposes, then the receipt of ITR works as the proof of address as well,” mentioned Jain.Make sure you file your ITR for AY 2022-23 before the due date, i.e. July 31, 2022.