Who is Not Required to File Income Tax Return?

Filing your income tax return (ITR) is an essential responsibility for most Indian citizens. However, navigating the intricacies of the process can be confusing, especially regarding who actually needs to file. 

This comprehensive post aims to clarify the different scenarios in which an individual is not required to file an Income Tax Return (ITR) in India.

Why Income Tax Return Filing is Important?

Before delving into exemptions, it's crucial to recognize the importance of filing your ITR. 

Doing so fulfills your legal obligation as a taxpayer and promotes financial transparency. 

Your filing contributes to national development by ensuring accurate tax collection. Furthermore, an ITR serves as valuable documentation for various purposes, including:

Loan applications

Banks and financial institutions often require ITRs to assess your financial stability and creditworthiness when applying for loans.

Visa applications

Certain visa applications, particularly business or work visas, might mandate an ITR as proof of income and financial standing.

Claiming tax benefits

Filing an ITR allows you to claim various tax deductions and exemptions offered by the government, potentially minimizing your tax liability.

Carrying forward losses

If you have incurred business or stock market losses during the year, filing an ITR enables you to carry forward these losses and offset your taxable income in future years.

Claim refunds 

If you have paid more taxes than you are liable to pay, filing ITR for the relevant assessment year with accurate details, you can also claim a refund of taxes paid.

Who is Not Required to File Income Tax Return (ITR)?

Now, let's explore the different categories of individuals who are not required to file an ITR in India:

1. Based on Income Levels 

Basic Exemption Limit 

The Indian government sets a "basic exemption limit." 

Individuals whose total income falls below this limit before considering any deductions are not obligated to file their Income Tax Returns (ITR). The exemption limit varies depending on the taxpayer's age group. As per the Budget 2024 following are the limits.

• Below 60 years: ₹2.5 Lakh (Old regime), ₹3 Lakh (New regime)
• 60-80 years: ₹3 Lakh (Old regime), ₹3 Lakh (New regime)
• 80 years and above: ₹5 Lakh (Old regime), ₹3 Lakh (New regime)

Rebate u/s 87A is available under both the regimes.

Important Note: Even if your income falls below this limit, filing an ITR is highly recommended in specific situations. 

For instance, if you have income from multiple sources, have paid taxes more than owed and want a refund for it, or wish to claim tax benefits like deductions or carry forward losses, filing an ITR is still beneficial.

2. Based on Specific Situations

Individuals aged above 75 years with Specific Conditions 

Individuals above 75 years who meet the following criteria are exempt from filing an ITR:

• An individual should be a “Resident” in the previous year.
• Pension or Interest income is the sole source of income.
• Interest income accrued/ earned is from the bank account in which the pension is being received.
• The senior citizen will submit the declarations to the specified bank only.
• The bank specified by the Central Government is responsible for deducting TDS from senior citizens, taking into account deductions under Chapter VI-A and the rebate under Section 87A.
• After the designated bank deducts tax for senior citizens aged 75 and above, there will be no need for these individuals to file income tax returns.

What  Will Happen If We Don’t File ITR?

While not mandatory for everyone, failing to file your Income Tax Return (ITR) in India can lead to several potential consequences, ranging from financial penalties and interest charges to limitations on availing certain benefits. 

Here's a breakdown of what could happen:

Financial Penalties

Late Filing Penalty
If you miss the deadline for filing your ITR, you will be liable to pay a late filing penalty under Section 234F and 234A of the Income Tax Act, 1961. The penalty amount depends on the time of filing of ITR:

Interest u/s 234A

• In case of late furnishing of ITR: 1% for every month or part of the month after the due date of ITR till the ITR is actually furnished.
• In case ITR not furnished: 1% for every month or part of month after the due date of ITR till the assessment is completed u/s144.

Limitations on Benefits
 

Processing of Refunds 
If you are eligible for a tax refund but haven't filed your ITR, you cannot claim it. The tax department will not process your refund request until you file your return.

Carrying Forward of Losses 
If you have incurred business or investment losses during the year, filing an ITR is crucial to carry forward these losses and offset your taxable income in future years. Failing to file your ITR will prevent you from utilizing this benefit.

Loan and Visa Applications
Certain banks and financial institutions, as well as visa authorities, may require an ITR as proof of income and financial stability. Not having a filed ITR could hinder your loan or visa application process.

Other Potential Consequences
 

Department Scrutiny
Although not assured, neglecting to file an Income Tax Return (ITR) may draw the attention of the Income Tax Department, possibly resulting in investigations and evaluations of your financial circumstances.

Prosecution (Rare): 
While uncommon, according to Section 276CC of the Income Tax Act, failure to file an Income Tax Return (ITR) could result in legal action, including the possibility of imprisonment for a period ranging from six months to seven years. 

However, recent amendments, notably the Finance Act of 2022, have diminished the likelihood of prosecution if an updated return is submitted within the stipulated timeframe.

Additional Considerations

Tax Regimes 
 

India currently offers two tax regimes – the old tax regime and the new tax regime. The basic exemption limit may differ slightly between these regimes.

It's crucial to understand which regime you are opting for and how it impacts your exemption limit.

Consult a Tax Professional

While this blog provides general information, seeking guidance from a qualified and experienced tax professional is highly recommended.

They can assess your specific circumstances and advise you on whether you need to file an ITR and how to optimize your tax filing process for maximum benefit.

Conclusion

Comprehending the exemptions and potential benefits associated with filing an ITR empowers you to make informed decisions about your tax obligations. Remember, this information is for general understanding only, and consulting a tax professional is critical for personalized advice tailored to your unique situation.