Income Tax

What is Filing Procedure and Penalties Associated with NIL Income Tax?

calendar11 Mar, 2021
timeReading Time: 4 Minutes
NIL Income Tax

Any person whose taxable income falls below the basic exemption limit or the income tax slab has to file an income tax called as NIL income tax. As a result, he is not obligated to pay any taxes. He can choose to file nil income tax return as it is important to file an ITR irrespective of low income.

Filing under nil income tax is a kind of declaration to the Income Tax Department[1] that the person has earned nil or low income throughout that assessment year. So, it is useful to file a nil income tax return for the sake of creating records.

Why to File Nil Income Tax Return?

The benefits of filing Nil Income Tax Return are:-

benefits of filing Nil Income Tax Return

Serves as Authentic Proof of the Income

While applying for loan or passport there is a requirement to give a proof of the salary slip also while applying for visa. If the nil income tax has been filed by the person then he will have an official record of proof of his income.

To Claim a Refund

Even though the person is not under the taxable limit but some of the times when tax is deducted at source where the banks deducts TDS over interest income above Rs 10,000. In such cases the person is qualified to receive a refund and hence filing a nil return is the best manner to get the refund.

In fact, when the person is mistakenly taxed he is eligible to receive 0.5% interest for every month on the extra sum that has been paid i.e. he will receive interest on the amount. Nonetheless, applicability of this benefit shall only be availed if the person files his returns by the particular due date as has been mentioned by the Income Tax Department. But in case of filing returns after the due date, the interest shall be foregone.

Carry Forward Losses

The mechanism of carrying forward of loses where if theperson is investing in the stock markets, he can counterbalance his capital losses against capital gains at some other date. Though, this is possible if the person is filing the tax returns yearly to continue the chronology of accounts.

How to File Nil Income Tax Returns?

Filing of nil income tax returns is same as the filing of regular income tax returns. A person can electronically file his returns online in just a few simple steps.

  • Keeping all the mandatory containing personal information like Aadhar card, PAN card, Form 16, Bank account details, and details of all the investments.
  • Then login to an e-filing facilitator online portal with the mentioned mandatory documents. Enter your salary details and deduction.
  • Then Income tax will be computed at that stage and it will show that the person have no taxes due to be paid.
  • The investments details should be entered to claim the deductions.
  • The income tax return shall be submitted to the Income Tax Department.
  • Then send to ITR-V to CPC which is in Bangalore to complete the whole process of e-filing.

So, filing of nil income tax returns has many benefits and if the person is not filing the income tax return thinking that he is within the threshold limit of tax then he must change his mind and avail the advantages of filing nil income tax returns.

Who all can File Nil Income Tax Return?

Below mentioned entities can file the NIL Income Tax Return, which are as follows:-


A person having more than Rs.2.5 lakhs of the income is obligated to file an income tax return in ITR-1/ITR-2 form every year under the Income Tax Act. For an individual the due date for Income tax return for on or before the 31st of July.

A penalty of Rs.5000 is attracted on failure to file an income tax return if the return remains due on 31st July and is filed before 31st December and a penalty of Rs.10, 000 is attracted if the income tax return is filed after 31st December.

Where the annual income is not exceeding Rs.5 lakhs then the penalty for late filing income tax return is fixed at Rs.1000. If an individual’s income becomes less than Rs.2.5 lakhs of the income in a year, then the person is not required to file return but it is always advised the individual should file the NIL income tax return, even if the taxable income is less than Rs.2.5 lakhs i.e. basic exemption limit of Rs.2.5 lakhs.


Form ITR-3 or ITR-4 is the form of income tax returns for the proprietorship firms. They are required to file income tax return in Form ITR-4 when the taxpayer has chosen for the presumptive taxation scheme. 

NIL return should be filed even if there is no business activity of the proprietorship firm where the firm has been previously filing the income tax return under ITR-3 or ITR-4.

Even if there is no activity or revenue for most of the proprietorship firms, there will be few incurred expenditure that shall be carried forward as a loss. Therefore, in proprietorship firm, NIL income tax return must be filed even if there is no activity.


Form ITR-5 in the income tax return is for all the LLPs that are registered in India and they are required to file an income tax return every financial year irrespective of their business profit or turnover or activity.

The LLPs are required to file the NIL income tax return and the annual MCA return given under Form 8 and Form 11 even if they have not commenced any activity after incorporation of LLP. 

The penalty on failure to file NIL income tax return under the Act for a company would be Rs.5000, if the ITR is filed before 31st December and if the return is filed after 31st December then a penalty of Rs.10, 000.


NIL Income Tax is mandatory for the specified types of business even if there is no activity. In case of individuals, even if their salary is below the income taxable limit they are recommended to file NIL Income tax return if once they have begun filing income tax returns and also to avail various benefits. Therefore, filing NIL Income Tax helps maintain income records and builds a sound financial profile.

Read our article:Reduce your Income Tax Liability to save money for your future

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