Benefits of Filing ITR Even When the Income is Below the Exemption Limit
The Significance of Filing ITR for Low-Income Earners
Filing income taxes appears to be quite a tedious task, due to which many people who fall into the low-income group skip this process. However, what people fail to understand is that the income tax return (ITR) is a very important document that acts as a proof of income, residence and can benefit an individual in many other ways. Filing taxes is the social duty of every citizen of the country and is a sign of responsibility.
According to income tax laws, it is mandatory to file taxes if an individual has made some specified transactions or they have a gross total income that surpasses the basic exemption limit for that particular financial year.
Tax Compliance and Legal Obligations
According to the Income Tax (IT) Act of India, if the taxable income of an individual exceeds the basic exemption limit, then it is compulsory to file the ITR.
If the income of an individual is less than Rs. 2.5 lakhs, they are exempt from taxes. However, even if they do not need to pay taxes, they can file their ITR. Such ITRs are termed as “NIL Return”. It informs the income tax department that the individual has no taxable income for that specific financial year.
If the net taxable income of an individual is less than Rs. 5 lakhs, they are allowed to claim an income tax rebate of up to Rs. 12,500 under section 87A. However, filing the ITR is mandatory to claim the rebate.
If an individual is mandated to file their ITR and misses out on doing so, the ITR can be filed past the deadline. However, if the taxable income is less than Rs 5 lakh, the penalty charged will not exceed Rs. 1,000. If the net taxable income is less than Rs. 5 lakhs, the tax rebate under section 87A ensures no tax liability.
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Benefits of Filing ITR Despite No Tax Liability
Even if an individual does not have to pay taxes, they must file their ITR due to the various benefits it offers.
- Claiming Refunds
If the employer deducts Tax Deducted at Source (TDS) from the salary of the taxpayer, a refund can be claimed. All they need to do is file their Nil returns.
- Building Financial Credibility and Proof of Income
Filing ITR is documented evidence of an individual's income. Filing ITRs even if it's a Nil Return ITR can be very useful and is the best proof of income when one applies for a loan or visa or even a document like PanCard.
- Carry Forward Losses and Set-Offs for Future Years
If an individual incurs stock market losses, the losses can be carried forward, if they file Nil Returns.
- Government Benefits and Subsidies (Eligibility and Documentation)
To apply to some of the government schemes and subsidies, an individual must match the income criteria. ITR is a valid income proof and makes it easy for an individual to qualify for the scheme.
Individuals filing ITRs might also be eligible for certain subsidies like education benefits or healthcare under specific schemes. A few schemes and subsidies with limited funding give priority to eligible applicants. Those who file ITRs can increase their chances of being chosen for these programs.
- Address Proof and Tax Residency
Passport applications accept Nil returns as valid address proof. It also helps establish one’s tax residency status, which helps in visa application or claiming tax benefits.
Conclusion
Filing ITR is an important part of financial planning and development. By doing so, an individual not only follows the tax laws, but also creates a record that can be used for various government programs, subsidies, and other financial opportunities. Visit Federal Bank's Blog to stay updated on the various changes taking place in the world of finance.