Why you need to file ITR even if your income is below the taxable limit

Padmaja Choudhury   /   July 17, 2023

In a country of over 144 crores, only around nine crore people file their ITR. Astounding, isn’t it? That is only around 6.25%, while in the US, the percentage of the population paying income taxes is close to 45%.

However, the reason behind the majority of people not filing their ITR is their lower income level. As per 2022-23 data, the per capita income in India stands at Rs. 172000. This is below the minimum taxable income of Rs. 2.5 lakhs per the old regime and Rs. 3 lakhs per the new regime. That said, filing an income tax return even when a person’s annual income is below the minimum taxable income could help in different ways.

Benefits of filing ITR

  1. Claiming tax refund: If you are a salaried employee whose employer deducts TDS or a freelancer, or self-employed professional whose clients deduct TDS, even though your annual income may not be above the threshold but only by filing an ITR, you can get the refund of these taxes. Even banks deduct TDS on the interest payments on your deposits above Rs. 40,000, so it becomes essential to file the ITR to get all this money back into your account if you do not have any tax liability. If you do not file an ITR or even file it after the deadline, there is no scope for getting these refunds. Taxes deducted from your income in a particular financial year can only be refunded in the next assessment year. Suppose your client has deducted TDS from your payment in the FY 2022-23. You can get a refund if you do not have the tax liability or a higher TDS was deducted than your tax liability by filing the ITR in AY 2023-24
  2. Helps in getting a loan: Income Tax returns are regarded as one of the valid proofs of one’s income. Thus, availing a loan and filing ITR are connected deeply as the banks or any other lenders often want to see the ITR return for evaluating the income of the borrower/ applicant before approving any loan amount. So, even if you have an annual income lesser than the minimum taxable income, still filing the ITR can help you avail loan, especially if you are self-employed, as ITR is the most important income proof. It makes the application process for the loan easier as the lender does not have to crosscheck your bank accounts, salary slips and other documents to evaluate your income.
  3. Mandatory for owning foreign assets: If you own any movable or immovable foreign assets, you need to file an ITR. While filing the ITR can get you certain benefits or exemptions for your investments, not filing the ITR can attract severe penalties. So, even if someone gifts you any asset in a different country, you need to show that in the ITR by filing the same.
  4. Essential for international travel: Many countries only provide a visa when the applicant has an ITR. Suppose you are travelling for work, education or leisure. In that case, the visa is only given when you submit the ITR as proof of income. Thus, if you have plans to go for higher education in foreign countries or travel or apply for jobs, it will be beneficial to start filing ITR soon. While some countries ask for only a single-year ITR, the year preceding the year of flying abroad, others ask for two or more years of ITR. Therefore, the sooner you start filing the ITR, the better it will be for your plans.
  5. Carry-forwarding losses: If you are someone who invests in the stock market or trades in the market, or a solopreneur, then by filing ITR, you can set off your losses against your profits. Often people in the initial years of self-employment, or sole-proprietary businesses, do not file ITR. Many people believe that it’s pointless to file an ITR in the first few years due to expected losses. Instead, there is the benefit of doing so, as you can set off losses in the upcoming years when your venture turns profitable. The income tax department allows you to set off losses for up to eight consecutive years. However, for this to happen, you need to file the ITR every year to keep a record of your profit and losses with the IT department. Therefore, when your losses are adjusted against your profits, your tax liability can decrease as well. Suppose you invested in certain stocks three years back and in July ’22 that is FY 2022-23, you sold those stocks, but at a loss. Now, until FY 2030-2031, you can set off this loss against your capital gains.

Self-assessment and e-filing

With the upgraded e-filing process of ITR, you can easily self-assess your taxable income and file the return without any hassle. If your annual income is below the taxable income threshold, then this can be one of the easiest and wisest ways to file your ITR. All you need to do is to follow these steps:

  • First, arrange all your documents like Form 16/ 16A or Form 26AS, PAN card, bank statements, Aadhaar card, and salary slips.
  • Then you need to calculate your income, which can be done with the pre-filled ITR that the IT department has introduced recently. All you need to do is to check that all the incomes and expenses entered in the form are correct.
  • Also, check the investments if entered properly so that you can avail the deductions against them. However, this is only applicable if you are opting for the old tax regime.
  • Then submit the form and click on verify.
  • You get three options for the verification process, choose the one that suits you the best and you are done.
  • After the verification is completed, if there is any tax refund to come, it will be reflected in your registered and pre-validated bank account with the IT department within 2-3 months.

So, if you are yet to file the ITR for FY 2022-23, do it right now as the clock is ticking!

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