Benefits of filing ITR even when income is below exemption limit
Even though filing of ITR is not mandatory for some individuals, there are certain benefits that one can avail of provided the ITR has been filed. Here are few of those.
These are people with gross total income (GTI) below the exempted limit of Rs. 2.5 lakh. For individuals aged above 60 years but less than 80 years, this exemption limit is Rs. 3 lakh and for individuals aged above 80 years, the exemption limit is Rs. 5 lakh. For these people, if the date is extended or not, does not really matter.
However, just because you are not required by law to file your ITR, it is advisable that you do. Here is why.
Why you need to file ITR
The gross total income refers to the total income from the five heads of income and is calculated before allowing any deductions under sections 80C to 80U of the Income-tax Act, 1961. So, if one's gross total income is say, Rs 3.30 lakh and investment under section 80 C is Rs 1 lakh, the taxable income becomes Rs 2.3 lakh, the ITR still needs to be filed as GTI exceeds exemption limit before adjusting for deductions.
Further, according to Akhil Chandna, Director, Grant Thornton India LLP, "Even if the income is below the basic exemption limit, the person would be required to file ITR in India if, he holds any asset outside India or has any financial interest in any entity outside India or has signing authority in any account located outside India or is a beneficiary of any asset or financial interest outside India or claiming any benefit under Double Taxation Avoidance Agreement (DTAA)."
Benefits of filing ITR
Even though filing of ITR is not mandatory for some individuals, there are certain benefits that one can avail of provided the ITR has been filed. Here are few of those:
Claiming refund: There could be a possibility that there has been tax deducted at source (TDS) on some investment made in the name of the individual. "If TDS has been cut, one will have to file the ITR to claim refund of the same," informs Suraj Nangia, Partner, Nangia Advisors LLP.
Processing of documents: While applying for loans, the eligibility and quantum of loan would depend on one's income which can be established through filed ITRs. "Income tax return gives you a detailed picture of your total income earned during a year and taxes paid on it. Moreover, these documents are accepted by various agencies for easier loan and visa processing," explains Archit Gupta, Founder & CEO, ClearTax.
Carry-forward of losses: Income tax rules allow carry-forward losses to set them off against capital gains only to those who file ITR in the relevant assessment year. "There are possibilities that you may have incurred losses for a year. In such a scenario, you cannot stay away from filing of your return saying you have an income below the exemption limit. In fact, you must ideally file your return so that you can carry forward the losses you have incurred to set it off against the income of the subsequent years."
Establishing income proof in compensation cases: Although, the Motor Vehicles Act does not make it compulsory to provide the ITR while arriving at compensation in case of accidental death or disability, the claims tribunal agreed procedures approved by Delhi High Court mention the need for ITR in case of self-employed persons.
The idea is to establish the income of the person to arrive at the compensation for which an ITR can serve as an income proof. In the case of private sector employees, the salary statement from employer and last six months of bank statement will suffice.
Being a law abiding law abiding citizen: More than any other benefit, being on the right side of law helps. "It is also recommended to keep the income tax department informed about your income and taxability. This communication is only possible when you file your ITR," says Gupta.