Does your income fall below threshold? You might still need to file your income tax return

The government had introduced a provision in the Union Budget 2021 for exempting senior citizens aged 75 years and above from filing income tax returns for this year if they have pension income and interest from a fixed deposit in the same bank.

Elaborating on the issue, Sandeep Jhunjhunwala, Partner, Nangia Andersen LLP, says where an individual’s gross total income (GTI) is between Rs 2.5 Lakh and Rs 5 Lakh, she may claim a tax rebate. "Nonetheless, if the gross total income is in excess of basic exemption limit, they will be required to file an income tax return for such a year," he says.

Further, the law also provides for the mandatory filing in specific circumstances (such as expenditure in excess of prescribed limit on foreign travel and electricity bill, foreign income or assets, etc.) even if the gross total income is less than the basic exemption limit.

Persons having income below the basic exemption limit should be mindful of these circumstances before opting to not file an ITR, Jhunjhunwala adds.

Sethuraman also adds that filing the return would be mandated for individuals who deposit more than Rs 1 crore in one or more current bank accounts during the year.

Advantages of filing returns even if don’t have to

Those filing tax returns can claim a refund of taxes paid as TDS (Tax Deduction at Source). Conversely, if one has not filed returns, one cannot claim TDS refund.

Filing of return also becomes necessary if you want to claim deduction for certain expenses or investments, but you missed sharing those with your employer and as a result faced higher TDS.

Also, ITR filing is required to claim a refund of tax deducted at source against payments received by an individual, which may otherwise not be liable to taxation.

If your income is more than the basic exemption limit, but below Rs 5 lakh, you can claim a rebate under section 87A for up to Rs 12,500.

Says Jhunjhunwala, " Where an individual’s GTI is between Rs 2.5 Lakhs and Rs 5 Lakh, she may claim a tax rebate.

Sethuraman adds, “Even though filing of ITR is not mandatory for some individuals, there are certain benefits that one can avail of provided the ITR has been filed.”

One needs to file the return to carry forward losses and set off against future income. He says income tax rules allow carrying forward of losses to set them off against capital gains only to those who file the ITR in the relevant assessment year.

ITR is also a common prerequisite while applying for loans and credit cards. International visa applications may also require ITRs of a few years.

Retain documents

According to Jhunjhunwala, one should preserve the documentary proof concerning the source of income and deduction or exemptions claimed in the ITR. Robust documentation such as investment/ expenditure proof for claims under Section 80C, donation receipts for Section 80G, rental receipts for house rental allowance exemption etc. should be maintained.

As per the Finance Act, 2021, tax officers can reopen assessments for up to three years in generic cases (six years for earlier periods) and over 10 years in specific cases. Therefore, based on the nature of income and assets, taxpayers should maintain documents for six years at least.