Income below Rs 7 lakh: Do I need to file ITR?

income tax

Income below Rs 7 lakh: Do I need to file ITR?

Filing an Income Tax Return (ITR) is compulsory even if your income doesn't exceed Rs 7 lakh due to various financial activities and legal obligations. This article explores the necessity of ITR filing, essential thresholds, and potential consequences of non-compliance.

Filing an Income Tax Return (ITR) and paying income tax are two distinct actions. While you may not need to pay tax if your income is below the Rs 7 lakh threshold, filing an ITR can still be mandatory. For FY 2023-24 (AY 2024-25), the deadline for ITR filing is July 31, 2024, for those not requiring an income tax audit.

Eligibility for Tax Rebate

Under Section 87A of the Income Tax Act, 1961, taxpayers are eligible for a rebate if their net taxable income is within Rs 5 lakh (old tax regime) or Rs 7 lakh (new tax regime). The maximum rebate is Rs 12,500 under the old regime and Rs 25,000 under the new regime. Despite this rebate reducing your tax liability to zero, you are still required to file an ITR.

Sudhir Kaushik, Co-founder and CEO of Taxspanner.com, told ET, "Generally, taxpayers have a mis-understanding that if tax is not payable then filing of ITR is also not mandatory," Filing is required if your gross total income before deductions under Chapter VI (Sections 80C, 80D, etc.) surpasses the basic exemption limit. For FY 2023-24 (AY 2024-25), these limits are:

Rs 2.5 lakh for individuals below 60 years

Rs 3.0 lakh for individuals between 60 and 80 years

Rs 5.0 lakh for individuals above 80 years

In the new tax regime, the basic exemption limit is uniformly Rs 3 lakh for all taxpayers.

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Situations Mandating ITR Filing Irrespective of Income

As per the ET report, according to Neeraj Agarwala, Partner at Nangia Andersen India, certain circumstances necessitate ITR filing regardless of your income level

Annual bank deposits exceeding Rs 50 lakh

Electricity bills over Rs 1 lakh per year

Ownership or authority over foreign assets or accounts

Professional earnings exceeding Rs 10 lakh annually

TDS/TCS over Rs 25,000 (Rs 50,000 for seniors)

Expenditures of Rs 2 lakh or more on foreign travel

Examples Highlighting ITR Filing Necessity

Consider these scenarios

A salaried individual with a gross taxable income of Rs 5.5 lakh must file an ITR despite deductions reducing the taxable amount.

If your net taxable income is Rs 4.25 lakh, you are exempt from paying tax but must still file an ITR due to your gross income exceeding Rs 2.5 lakh (old regime) or Rs 3 lakh (new regime).

A salaried individual with a gross taxable income of Rs 7.5 lakh, benefiting from deductions and rebates, must still file an ITR.

Agarwala emphasizes, "Individuals must file an ITR if their total income, excluding deductions under Chapter VI-A, exceeds the basic exemption limit."

Consequences: Not Filing an ITR

Failing to file an ITR by the July 31, 2024, deadline can lead to several penalties

Penal interest at 1% per month on outstanding tax (Section 234A)

Interest for delayed advance tax payment (Section 234B)

Late fee of Rs 5,000 (Rs 1,000 if income is below Rs 5 lakh) under Section 234F

Forfeiture of loss carry-forward from stocks and other sources, though house property losses can still be carried forward

Loss of interest on tax refunds if ITR is filed late

Potential for a Best Judgment Assessment by the tax officer

Default to the new tax regime without claiming deductions if Form 10-IEA is not submitted

Filing an ITR is essential for complying with tax laws, claiming refunds, and avoiding penalties, even if your income falls below the taxable threshold.

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