Nagpur: Yes, if you are planning to apply for a loan or want to claim refund
With the last date for filing Income Tax Returns fast approaching, most tax payers are probably in the midst of doing so. But what if your income is below the taxable limit of Rs 2.5 lakh per annum? Should you still file tax returns?
You should, under a few circumstances. Some of these situations are mandatory, while some are advisable as there are benefits of filing returns.
The biggest benefit of filing tax returns is that it helps when you apply for a loan in future or when you apply for a visa, say tax experts. For any kind of loan, home loan, vehicle loan, car loan, etc, most lenders ask for proof of tax returns of the previous three years.
So, if you have just entered the workforce and at Rs 20,000 per month, your annual salary is below the taxable limit of Rs 2.5 lakh and you are not required to file returns. But it is useful to do so because you can build proof of your finances. Even if you are applying for a loan as a co-borrower, the return will serve as proof of your income. Similarly, if you are planning to travel abroad, then tax returns are required while applying for a visa.
Since 2012, any individual holding a foreign asset has to mandatorily file returns, even if there is no income from that asset, says Sanjeev Gokhale, a Mumbai-based Chartered Accountant.
“It could be a foreign bank account, immovable property, partnership in a firm, etc. But they may still continue to hold foreign assets. In such cases they have to file returns,” he points out.
Gokhale cites the example of one of his clients who is a retired senior citizen. She earned Rs 700,000 interest free income from tax-free bonds and her taxable income was only Rs 14,000. “While there was no need for her to file returns, I advised her to because it is proof that she has income, even if it is not taxable. There is a column in the ITR form where you can show your non-taxable income,” he adds.
Another reason why you have to mandatorily file returns is to claim tax refund or to set off losses. For instance, if you have suffered losses from stock market transactions and you want to carry it forward to the next year then you must file refund, even if your annual income is below the taxable limit, says Divakar Vijayasarathy, co-founder of Meeturpro.com, an online marketplace for tax, legal and regulatory services.
Or it could happen that despite your income being below the taxable limit, your employer has cut Tax Deducted at Source (TDS). Or you earned some money through freelance work and the company deducted TDS at 10 per cent. But since your income is lower than the taxable limit, you are entitled for refund. For claiming this refund you have to file return.
Another case could be if you are earning rental income of more than Rs 1.8 lakh per year. In this case, the tenant has to deduct TDS. So, while you are entitled to refund, if you have no other source of income, you have to file return to claim the refund, says Varun Advani, Chief Operating Officer of makemyreturns.com, a registered E-return Intermediary.
“ITR is a way to legitimise your financial standing and maintain a healthy financial transaction,” says Advani.