As per the income tax laws, filing of ITR is mandatory if an individual has done certain specified transactions or has a gross total income above the basic exemption limit for FY 2022-23 (AY 2023-24).
If an individual’s taxable income exceeds the basic exemption limit, then ITR filing becomes mandatory. However, income tax laws allow for a rebate under Section 87A if an individual’s net taxable income does not exceed Rs 5 lakh.
Any individual having net taxable income not exceeding Rs 5 lakh for FY 2022-23 (AY 2023-24), irrespective if they have selected the old or new tax regime, gets an income tax rebate under section 87A of up to Rs 12,500. “However, in order to claim such a rebate under section 87A, it is mandatory for a taxpayer to file their ITR,” said Dr. Suresh Surana, Founder, RSM India, a tax, audit and consultancy company.
Hence, an individual must file ITR even if his/her income is below Rs 5 lakh. The due date of ITR for those individuals who are not required to do an income tax audit is July 31, 2023 for FY 2022-23 (AY 2023-24).
Click here to read why ITR filing deadline should be extended permanently.
Here are some examples to understand this.
Example 1: Suppose an individual has net taxable income of Rs 4.25 lakh. As the income is below the taxable income of Rs 5 lakh, there will be zero tax payable. However, income of Rs 4.25 lakh is above the basic exemption limit of Rs 2.5 lakh, hence ITR filing is mandatory.
Example 2: Suppose an individual has gross taxable income of Rs 6.25 lakh. He is eligible to claim standard deduction of Rs 50,000 and section 80C deduction of Rs 1 lakh. After claiming the deductions, the net taxable income is Rs 4.75 lakh. Hence, ITR filing is mandatory here to claim the tax rebate under section 87A.
Example 3: Suppose an individual has gross taxable income of Rs 2.25 lakh. Here total taxable income is below the basic exemption limit of Rs 2.5 lakh. Hence, ITR filing is not mandatory. However, there are certain benefits of filing NIL ITR.
Consequences of not filing ITR
If you are mandated to file an ITR and still miss the deadline for filing ITR, you can still file your tax return. A return filed after the deadline will be termed as a belated ITR. However, you will be liable to pay a penalty and miss out on other benefits if you file a belated ITR.
Penalty amount: A penalty of Rs 5,000 will be payable if ITR is filed after the expiry of the deadline, which is July 31, 2023, currently. However, if your taxable income is below Rs 5 lakh, then penalty amount will not exceed Rs 1,000. For net taxable incomes below Rs 5 lakh, there is no tax liability due to tax rebate under section 87A. "However, for income levels exceeding Rs 5 lakh, if you had a tax liability and you did not file ITR, then penal interest under section 234A at 1% simple interest per month or part of the month will be levied," said CA Sandeep Agrawal, Director, Teamlease Regtech, a regulatory technology company.
Carry forward of losses: While filing belated ITR, you cannot carry forward losses from stocks, future and options (F&O) and others. However, a belated ITR will allow you to carry forward loss from house property.
Tax refund: If you are eligible for any income tax refund, then file your ITR by July 31, 2023, i.e., before the deadline. Because if you miss this deadline and file a belated ITR, then you will miss out on the payment of interest due on the tax refund. Further, if you skip filing any ITR (original or belated), you will not get the tax refund.
Who is required to file ITR mandatorily?
The Income Tax Act, 1961, under section 139, states that ITR filing is mandatory if an individual’s income is above the basic exemption limit or if an individual has undertaken certain specified transactions.
For FY 2022-23 (AY 2023-24), the basic exemption limit under both the old and new tax regimes is Rs 2.5 lakh for individuals below 60 years of age. For senior citizens between 60 and 80 years, the basic exemption limit is Rs 3 lakh in the old tax regime, and Rs 2.5 lakh in the new tax regime. For super senior citizens aged 80 years and above, the exemption limit is Rs 5 lakh under the old tax regime and Rs 2.5 lakh under the new tax regime.
According to Mihir Tanna, Associate Director (Direct Tax), S K Patodia & Associates, a Mumbai-based CA firm, following are the instances where an individual has to file his ITR irrespective of their income level:
- If an individual has deposited more than Rs 1 crore or Rs 50 lakh in one or more current and savings bank accounts, respectively.
- If an individual has incurred an expenditure exceeding Rs 2 lakh for himself or any other person for foreign travel.
- Has incurred an expenditure exceeding Rs 1 lakh toward electricity payment in a year.
- Is a beneficial owner or beneficiary of any asset outside India.
- Is a signatory to a foreign bank account.
- TDS/TCS of Rs 25,000 or more has been deducted in FY 2022-23 (AY 2023-24). In the case of senior citizens, the TDS/TCS of more than Rs 50,000 has been deducted in FY 2022-23 (AY 2023-24).
- For professionals, if the gross receipts exceed Rs 10 lakh they have to file ITR.
Other cases where ITR should be filed for own benefit
Due to the requirement of some benefits, one should file ITR.
For example, visa authorities generally require proof of previous ITRs filed and other financial documents before taking the decision on granting a visa. Another instance can be when you require a scholarship. Because ITR is considered an authentic proof of income, and providing proof of the same it will help further your scholarship case.
Click here to know how else can an ITR help you.
