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Business News/ Money / Personal Finance/  Your Questions Answered: What are the benefits of filing an income tax return for non-salaried individuals?
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Your Questions Answered: What are the benefits of filing an income tax return for non-salaried individuals?

Filing a nil income tax return even if the individual's income is below the minimum taxable income threshold, has various benefits such as proof of income, travel, loan, carry forward of losses and tax refund claims.

The government may also phase out the older personal income tax regime, which offers several deductions and benefits.Premium
The government may also phase out the older personal income tax regime, which offers several deductions and benefits.

Q. I am a 25-year-old data scientist working in Pune. I recently got married, my wife is a housewife, and she has never filed an income tax return. I wish to understand whether individuals not earning any salary are required to file an income tax return, she has never worked, I have purchased a few mutual funds in her name. Further, please explain what are the benefits of filing an income tax return. Please assume that she will be filing income tax returns under the old tax regime.

C. Prabhu, Panjagutta, Hyderabad, Telangana

An individual whose taxable income is below the threshold limit of Rs 2.5 lakh is not required to compulsorily file an income tax return under the old tax regime, however, he/she is at liberty to file ‘nil return’. A nil return is an income tax return filed by an individual to declare that their annual income is below the taxable limit. Under Income Tax Act, 1961, if an individual’s annual income is less than Rs 2.5 lakhs, he or she is not required to file a nil return.

However, it is highly recommended that a person file a nil return even if his income is below Rs 2.5 lakh. We have elaborated on the various benefits of filing ‘nil return’ later in this article. By filing a nil return, the taxpayer would declare to the Income Tax Authorities that their income is below the minimum taxable threshold of Rs 2.5 lakh.

All individuals whose taxable income is above Rs 2.5 lakh are mandatorily required to file income tax return. However, under the following circumstances, even an individual whose income is below Rs 2.5 lakh is required to file an income tax return mandatorily pursuant to Section 139 of the Income Tax Act:

  • An individual paid an electricity bill of at least Rs 1 lakh during the financial year
  • An individual spent at least Rs 2 Lakh on travel for oneself or another person abroad.
  • An individual who deposited at least one crore rupees into one or more current accounts.

Benefits of filing nil return

There are various benefits of filing an income tax return even if your taxable income is below the minimum taxable income threshold.

Proof of income

Many authorities view an income tax return as a source of income documentation (both government and private). For instance, you can submit an ITR to claim certain institute and/or university scholarships. The ITR aids in establishing the prospective student's ability to prove their income.

Travel

A valid Indian passport and a valid visa are required for everyone who wishes to go abroad. In order to achieve this, it's crucial to demonstrate one's source of income, which is quite simple to do using an income tax return as a proof of income.

The income tax returns are often mandatorily required by the immigration authorities when granting visa approval for international travel together with other forms of financial and income proof. Some may contend that since they make less than Rs 2.5 lakh annually, this perk (international travel visa) is useless to them.

But in case they choose to emigrate to a foreign country for higher studies or with their spouse then, not having a track record of income that has been demonstrated (no past income tax returns) will create unnecessary impediments to their visa application process and it may result in their visa application getting rejected from the concerned authorities.

Loan

When an individual applies for a loan, the lending institution will first request information about their PAN, credit bureau score, and their income tax return (if available). This is due to the fact that if an income tax return is provided and one has access to it, the lending institutions will be able to quickly assess the borrower's creditworthiness and authorise the appropriate loan amount and interest rate as a result. Typically, the banks or financial organisations asking for the loan require the last three years' worth of I-T returns.

Carry forward loss

An individual must file a return, even if it is a nil return if they intend to carry forward a stock market loss over to the following financial year. If you are investing in the stock market, you should be aware of the circumstances under which you can claim a set-off against loss incurred from stock market investment,

Tax refund claims

You can apply for a refund from the income tax department if your income withheld as tax deductible at source is greater than your tax liability. You must file an income tax return in order to receive this refund.

Conclusion

Irrespective of your income level filing an income tax return will benefit you in the long run. Most financial institutions require an individual’s spouse to stand as a guarantor for their loan or opt as a co-borrower. It is important that in such scenarios you have your past income tax return even if your past returns are nil returns.

Apart from lending, past income tax returns are useful in a number of other situations such as foreign travel, setting-off stock market loss, claiming tax refund etc. It is therefore highly advisable that one should file an income tax return annually even if his income is below the minimum taxable income threshold.

Kuvera is a free direct mutual fund investing platform.

Note: This is for informational purposes. Please speak to a financial advisor for detailed solutions to your questions.

Scenario one: Old vs new tax regime
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Scenario one: Old vs new tax regime

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Published: 20 Mar 2023, 04:16 PM IST
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