“In this world nothing can be said to be certain, except death and taxes.” – Benjamin Franklin. This phrase highlights the inevitability of death and burden of taxes.
Income Tax is one of the taxes that is levied directly on your Personal Earnings or Income. Income Tax is a tax you pay on your earnings. We can consider Income Tax as one of the most well-known and least understood aspects of Personal Finance.
Why an Individual has to pay Income Tax? – Income tax is one of the key sources of funds that the government uses to fund its activities and serve the public.
So, is it mandatory for everyone who earns to file income tax returns? What are the guidelines?
What is Income Tax Return?
Every tax payer has to declare his/her income to the Income Tax Department at the end of a Financial Year in a prescribed form by the Govt. This prescribed form is known as ITR. It is a summary of incomes earned during a particular Financial Year (April to March).
These incomes can be ;
- Income from Salary or Pension
- Income from Business or Profession
- Income from other sources like interest income etc.,
- Income from Capital Gains
- Income from House property etc.,
You can submit your Tax Return in one of the seven forms prescribed by the CBDT. These forms are referred to as ITR -1 , ITR2A, ITR 2, ITR 3, ITR 4S, ITR 4, ITR 5, ITR 6 and ITR 7.
The ITR gives a standard proof of income to a person and helps to establish a record with the tax department. When you file your ITR, it is proof that you have an income for which you have paid tax.
(Read : Which ITR form to file – AY 2016-17?)
Should I file Income Tax Return in India?
You are required/advised to file Income Tax Return in the following situations;
- Gross Total Income: If your (individual tax assessee) gross total income exceeds Rs 2.5 Lakh you have to file your tax return. The cut off limits for Senior citizens (who are more than 60 years old but less than 80 years old) and very Senior citizens (who are more than 80 years old) are Rs 3 Lakh and Rs 5 Lakh respectively. Kindly note that the gross income is before allowing any tax deductions under different sections like 80c, 80D, 80G, 80E etc., (Read : List of income tax deductions.)
- NRI : The above income slabs are also applicable for an NRI. Income earned or accrued in India is taxable in India. Income neither received nor accrued in India is treated as Foreign Income. You can ignore such income while filing your income tax returns in India.
- Carry forward of Losses : If you have incurred any losses like Capital losses, business losses etc., under any Head of Income and would like to carry forward them to next Financial Year, you have to file your ITR. (Read : How to set off Capital losses on Stocks or Mutual Funds?)
- Refund: If you have to claim REFUND, e-filing of ITR is mandatory.
- Foreign Assets : If you are a Resident Indian and have an ownership interest in any entity located outside India, you have to file ITR (even if you do not have any taxable income in India).
- TDS : If TDS has been deducted on your Salary and/or on income from other sources like interest income of FDs/RDs etc., it is advisable to file ITR even if you have no tax dues. (Read : Misconceptions on TDS)
- High Value Financial Transactions : If you have done any high value transactions, it is advisable to file your tax return. For example – If you make cash deposits aggregating Rs 10 lakh or more in a financial year in one or more Bank accounts of a person then Bank(s) will report to the IT department. (Read : List of High Value financial transactions)
- Compliance Notice : If you have been filing your ITRs for the past few years, it is better to continue filing ITR even if you have no taxable income in a particular financial year. Else, you may end up getting ‘compliance notice’ from the IT department for non-filing of Income Tax Return. (Read : How to reply to Compliance Notice for non-filing of Tax Returns)
- Exempt Income : If you have received any income which is exempt from income-tax, you can declare it in your tax return to show it as proof of your income. For example : If you receive ‘interest income from tax free bonds’ (this income is tax exempted) of Rs 7 Lakhs and you have salary income of Rs 50,000 only then you are advised to file ITR. While there is no need to file your tax returns, you are advised to file because it is proof that you have income, even if it is not taxable.
Should I file Tax Return even if I have no Taxable Income?
Filing of Income Tax Returns has its own benefits. If you are planning to take a Loan or apply for a Visa, a proof of income tax return filing may be required from you. Even if you have no taxable income, you can file your tax return. You can build proof of your finances/income.
Another scenario can be, your income might be below the taxable limit but your employer would have cut TDS (tax deducted at source) OR you might have earned some income through part-time consultancy work and the company would have deducted TDS at 10 per cent. So, in this case you are entitle to get ‘refund’ of TDS as your income is lower than the taxable limit. For claiming this refund, you have to file your tax return.
It is estimated that only 3% of over 1 billion people in our country are liable to pay income tax. Tax evasion is being done by both small and big tax payers. The number of people who declare annual income of over Rs.1 crore is abysmally low at just around 50,000.
Tax evasion is illegal. Do note that non-disclosure of income & non-filing of ITR may attract penalties and also has severe consequences. So, file your income tax return on time.
Latest News (29-July-2016) : The last date for filing Income Tax Returns for Assessment Year (AY) 2016-17 has been extended to August 5, 2016.
(Image courtesy of Mister GC at FreeDigitalPhotos.net) (Post published on : 12-July-2016)