Every income earning citizen of India is subject to The Income Tax Act, 1961, and the Income Tax Rules, 1962, and is obligated to file returns at the end of every financial year with the Income Tax Department if his income is under the taxable limit. The income tax return should be filed before the specified due date. The Finance Ministry has framed an Income Tax slab in accordance with which the citizens have to comply and file their Income tax return. It starts from income earners from 0 to 2.5 lakhs and hence the question always comes that whether is it Mandatory to File an ITR below 2.5 lakhs?
What Constitute Income Tax?
Income Tax in India is divided into two categories:
- Direct Taxes – Direct tax is a tax that is directly paid on an individual’s income to the government. Direct tax is further divided into two:-
- Income Tax – Any individual or a Hindu Undivided Family or any taxpayer except the companies, are liable to pay Income tax from the income received. The Income Tax Act, 1961 mentions the rate at which the income should be taxed.
- Corporate Tax – This tax is paid by the companies on the profits made by them from their businesses. Even here a particular tax rate has been prescribed by the income tax laws of India for the corporate world.
- Indirect Taxes – Indirect tax is a tax that someone else collects on the behalf of the taxpayer and is indirectly paid to the government. Few examples: Theatres, restaurants and e-commerce websites recover taxes from taxpayers on goods purchased by him or any services availed by him.
Read our article:Types of ITR (Income Tax Returns)
What is Income Tax Slab?
Income tax slab is the division of salaries which are applicable to different income earners and in respect of it the rate of income tax is mentioned which the respective taxpayer is bound to pay. So, each of the taxpayers are differently taxed under the Income Tax Act.
The Indian companies and the firms have their tax rate fixed which is 30% of the profits. But the individual, HUF[1] and other taxpayers are taxed according to their income as under the income tax slab. Tax slab or tax brackets are the incomes of people grouped into blocks. In India, we have divided the tax brackets into four tax slabs each with an escalating tax rate.
| Income Tax Slab |
New Regime Income Tax
Slab Rates (Applicable for All Individuals & HUF) |
| Rs 0.0 – Rs 2.5 Lakhs | NIL |
| Rs 2.5 lakhs- Rs 3.00 Lakhs | 5% (tax rebate u/s 87a is available) |
| Rs. 3.00 lakhs – Rs 5.00 Lakhs | |
| Rs. 5.00 lakhs- Rs 7.5 Lakhs | 10% |
| Rs 7.5 lakhs – Rs 10.00 Lakhs | 15% |
| Rs 10.00 lakhs – Rs. 12.50 Lakhs | 20% |
| Rs. 12.5 lakhs- Rs. 15.00 Lakhs | 25% |
| > Rs. 15 Lakhs | 30% |
Individuals (Senior Citizen)
| Up to Rs. 3,00,000 | – |
| Rs. 3,00,000 to Rs. 5,00,000 | 5% |
| Rs. 5,00,000 to Rs. 10,00,000 | 20% |
| Above Rs. 10,00,000 | 30% |
Individuals (Super Senior Citizen)
| Up to Rs. 5,00,000 | – |
| Rs. 5,00,000 to Rs. 10,00,000 | 20% |
| Above Rs. 10,00,000 | 30% |
Is it Mandatory to file ITR below 2.5 lakhs?
The answer to this question is: No, it is not mandatory to file ITR below 2.5 lakhs. As per the tax slab under Income Tax Act it is clearly given that any individual whose income is falling Up to Rs.2, 50,000 has a zero Income tax rate. Thus, it is not compulsory to file income tax return or pay any taxes.
However, it is recommended that a taxpayer can file a NIL income tax return and pay no tax. So, the taxpayer on ITR below 2.5 lakhs can still file income tax return as there are many benefits of it. Thus, given below are the various benefits even on zero tax liability:-
Loans
Whoever applies for loan has to give their account statement as evidence to the bank. All the major banks demand a copy of tax returns of the taxpayers. These banks ask for salary slip where certificate of TDS, deductions and a copy of last two years of the Income Tax Return is mandatory for the individual to submit.
Moreover, submission of copy of the ITR receipt even when he is filing ITR below 2.5 lakhs makes it comparatively easy if there are chances of the loan application getting rejected or getting loan of less amount than what the person has exactly applied for.
To Claim Refund
When a person has made any investment through fixed deposits the chances are that the person gets taxed on the basis of TDS. So, the person will have to claim refund from the Income Tax Department.
Thus, for claiming the refund amount it is necessary to file the returns as without that the person will have to go without claiming his refund amount. Even if the person is falling under the category of zero tax liability, he can avail the benefit of claiming the whole refund amount only if he lies in the category of ITR below 2.5 lakhs.
To Carry Forward Losses
If the person is not filing ITR, he won’t be able to carry forward the losses faced in the financial year. So, filing ITR enables to carry forward the capital loses to eight successive years right away after the year of loss so that in case of capital gain the amount would be adjusted. Thus, the person shall not be liable to pay taxes in the year of capital loss only if he is filing ITR below 2.5 lakhs.
Visa Processing
ITR receipts are required to prove when the person is travelling overseas or planning on travelling to USA, Canada, UK and Europe. Therefore, it is necessary to show copy of ITR as foreign consulates check the ITR receipts during visa interviews to ensure a legitimate source of income in India. Therefore, experts suggest that person should file ITR below 2.5 lakhs as that will be helpful while travelling to foreign countries.
Purchasing a High Life-Cover
It is very common for the people topurchase a life cover of above Rs. 50 Lakh. Nonetheless, the insurance companies only permit to choose for such high cover when they are shown the ITR documents for verification of the annual income because the amount of cover is mainly dependent on the income as earned by the person. Therefore, it is recommended to file ITR below 2.5 lakhs of salary to show the insurance provider.
Conclusion
Hence, it is not mandatory to file an ITR below 2.5 lakhs but it is highly recommended that in order to avail the advantages of Income tax the person should file nil income tax even if his income range is below 2.5 lakhs.
Read our article:ITR for Businesses: Things you need to Know
