File income tax return even if you don’t have taxable income

To file income tax return or not depends on your income level.

As per the income tax act, if your income is within exemption limit of tax, it is not compulsory to file a tax return. The minimum exemption limit as per current norms is Rs 2.5 lakh for individual up to 60 years of age. For senior citizen between 60 to 80 years, this limit is Rs 3 lakh and for those with age of 80 years, this limit is Rs 5 lakh.

It may come as a surprise that return filing may be mandatory or beneficial in some circumstances where you do not have taxable income. Let’s discuss.

You own foreign assets or foreign bank accounts:

Return filing is mandatory for the resident as per income tax act, who own foreign assets or has a financial interest in an entity located outside India or have a foreign bank account. This applies even though you have less than taxable income or no income at all. Non-reporting of foreign assets attracts penal provisions.

You buy or sell shares:

Sale purchase of equity shares results in capital gains. Many a time retired individuals or housewives trade in equity shares, but do not report their gains or losses. Even though it’s not mandatory to file a return if your total income is below exemption limit. But, in case you have short-term capital losses, the filing of Income tax return is beneficial, as you can adjust short-term capital loss against future capital gains up to 8 years. These losses can be carried forward only if a return of income is filed in the year of such loss.

You are seeking a refund:

The only way to claim a refund of taxes is by filing an income tax return. This applies to NRIs who have less than taxable income but are subject to TDS on rent payments. Or where you could not submit Form 15G/15H timely and TDS was deducted. Tax deducted by way of TDS gets deposited by way of TDS on your behalf. To claim back TDS deducted you have to file a tax return.

You are claiming deductions of Insurance premium, Investment, Home loan principal payment, etc.:

if you are claiming any deductions under section 80, which is allowed maximum up to Rs 2 lakh and your net income is below exemption limit, there is no tax liability on you. However, these deductions can only be claimed through a tax return.

Report exempt income:

Sometimes, we earn a large income which is exempt from tax such as commuted pension or tax-free gratuity or long-term capital gains from shares and we do not file a tax return or do not report them. The income tax department tracks investments and expenses of PAN holders via AIR (Annual Information Report) submitted by banks and financial institutions. Explaining the source of a large investment or expense may become easier when such exempt income is reported on your tax return.

Planning to apply for a loan or a visa:

Your tax return is a most trusted document to indicator your earnings. Visa authorities’ may ask for copies of your return. Banks/Lenders also request for tax return copies as proof of your income. Sometimes, tax returns also have to be submitted for applying for a credit card. So even though, you may have less than taxable income you can benefit by filing your returns regularly.

Exchanging old currency notes of Rs 500/1000 under Scheme of withdrawal of old notes as per PM’s statement on 8th November 2016:

Old high denomination currency notes to be exchanged/deposit into bank or post office within the timeline. These cash deposit in banks/post office account may trigger notice from income tax department seeking an explanation of the source of fund. Explaining the source of a fund may become easier if you have filed tax return regularly in past.