According to income tax laws, ITR filling is mandatory if a person has done certain specified transactions or if the total gross income is above the basic exemption limit for FY 2022-23 (AY 2023-24).
If a person's taxable income exceeds the basic exemption limit, filing an ITR becomes mandatory. However, the income tax laws allow deduction under section 87a if the person's net taxable income does not exceed Rs 5 lakhs.
A person with a net taxable income not exceeding Rs 5 lakh for FY 2022-23 (AY 2023-24), regardless of whether he opted for the old or new tax system, gets a deduction in income tax under section 87A up to Rs 12,500. “To claim such a rebate under section 87A, the taxpayer must fill the ITR,” said Dr. Suresh Surana, founder of RSM India, a tax, audit, and consultancy company.
Therefore, a person has to file an ITR even if his income is less than Rs 5 lakhs. The ITR expiration date for people who are not required to do an income tax audit is July 31, 2023, for FY 2022-23 (AY 2023-24).
Here are some examples to understand this
Example 1: Suppose a person has a net taxable income of Rs 4.25 lakh. Since the income is less than the taxable income of Rs 5 lakh, no tax will be paid. However, the income of Rs 4.25 lakh is above the basic exemption limit of Rs 2.5 lakh, therefore the ITR filling is required.
Example 2: Suppose a person has a total taxable income of Rs 6.25 lakh. He is eligible to claim a standard deduction of Rs 50,000 and section 80C deduction of Rs 1 lakh. After claiming the deductions, the net taxable income is Rs 4.75 lakhs. Therefore, the filing of an ITR is mandatory here to claim the tax rebate under Section 87A.
Example 3: Suppose an individual has a gross taxable income of Rs 2.25 lakh. Here the total taxable income is below the basic exemption limit of Rs 2.5 lakh. Therefore, the ITR deposit is not mandatory. However, there are certain benefits to filing NIL ITR.
Consequences of not filing ITR
If you are mandated to file an ITR and you still missed the deadline to file an ITR, you can still file your tax return. A return filed after the deadline will be termed as a belated ITR. However, you will be liable to pay a penalty and lose other benefits if you file a belated ITR.
Penalty Amount: A penalty of Rs 5,000 will be paid if the ITR is filed after the expiration of the deadline, which is 31 July 2023. However, if your taxable income is less than Rs 5 lakh, the penalty amount shall not exceed Rs 1000. For net taxable income below Rs 5 lakh, there is no tax liability due to tax deduction under section 87a. "However, income levels exceeding Rs 5 lakh, if you have tax liability and do not file ITR, then penal interest will be charged under section 234A at simple interest of 1% per month or part of the month will be levied," said CA Sandeep Agrawal, Director, Teamlease Regtech, a regulatory technology company.
Carry forward of losses: While filing a delayed ITR, you cannot forward losses on stocks, futures, options (F&Os), and others. However, a delayed ITR will allow you to transfer the loss of home ownership. Also, you cannot opt out of the new tax regime by filing an ITR after the deadline.
Tax refund: If you are eligible for an income tax refund, file the ITR before July 31, 2023, that is, before the deadline. Because if you miss this deadline and file your ITR late, you will lose the interest payment due on your tax refund. Also, if you skip filing any ITR (original or belated), you will not get the tax refund.
Who is required to file ITR mandatorily?
The Income Tax Law of 1961, under section 139, states that the ITR filing is mandatory if the income of a person is above the basic exemption limit or if the person has undertaken certain specified transactions
For FY 2022-23 (AY 2023-24), the basic exemption limit in both the old and new tax regimes is Rs 2.5 lakhs for persons under 60 years of age. For seniors between the ages of 60 and 80, the basic exemption limit is Rs 3 lakhs under the old tax system and Rs 2.5 lakhs under the new tax system. For seniors aged 80 and above, the exemption limit is Rs 5 lakhs under the old tax system and Rs 2.5 lakhs under the new tax system.
According to Mihir Tanna, Associate Director (Direct Taxes), SK Patodia & Associates, a Mumbai-based CA firm, the following are the instances where an individual is required to file their ITR regardless of their income level:
- If a person has deposited more than Rs 1 crore or Rs 50 lakh in one or more current and savings bank accounts respectively.
- If an individual incurred an expenditure exceeding Rs 2 lakh for himself or any other person for foreign travel.
- Incurring charges of more than Rs 1 lakh for electricity payments in a year.
- Is a Beneficial owner or beneficiary of any assets outside India.
- Is a signatory to a foreign bank account.
- TDS/TCS of Rs 25,000 or more was debited in FY 2022-23 (AY 2023-24). For senior citizens, TDS/TCS of more than Rs 50,000 has been deducted in FY 2022-23 (AY 2023-24).
- For professionals, if the gross receipts exceed Rs 10 lakh, they must have to file the ITR.
Other cases in which ITR should be filed for own benefit
Due to the requirements of some benefits, one should file ITR.
For example, visa authorities generally require proof of previous ITRs and other financial documents before deciding whether to grant a visa. Another instance can be when you need a scholarship. As ITR is considered genuine proof of income, submitting proof of this will help improve your scholarship status.
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