Tax season often creates a panicking situation amongst individuals to file income tax return. On the other hand, few individuals assume that only people with high income need to file the income tax return. Because income tax laws have widened the scope and made it essential under various scenarios to file the return, such situations can potentially cause problems in your life.
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Let us explore who needs to file an Income tax return to help you identify the category in which you are falling. Whether you are required to file or not!
Who Should File an Income Tax Return?
If you fall under any of the scenarios listed below, you are required to file your income tax return as per the Income Tax Act:
Income Exceeding the Basic Exemption Limit
If you are earning in India and your total income before adjustment of deductions like investments in tax-saving instruments, life insurance premium, mediclaim, etc. exceeds the minimum exemption limit set by the government, you are required to file an income tax return. The basic exemption limit varies based on your age, selection of tax regime, etc.:
| Age Bracket | New Tax Regime | Old Tax Regime |
| Resident Individuals (less than 60 years) | 3,00,000 | 2,50,000 |
| Resident Senior Citizens (≥ 60 years but < 80 years) | 3,00,000 | 3,00,000 |
| Resident Super Senior Citizens (≥ 80 years) | 3,00,000 | 5,00,000 |
Example:
Sai, a 28-year-old employee, earned ₹5,00,000 in the current financial year. He invested ₹3,00,000 in Equity-linked mutual funds. His net income is less than the basic exemption limit i.e. ₹2,00,000 [₹5,00,000-₹3,00,000]. However, if his total income before adjustment of investment in tax saving scheme exceeds the exemption limit of ₹2,50,000, he must file an ITR.
Eligible to Claim a Refund
To claim a refund for taxes paid, such as Tax Deducted at Source (TDS), it is necessary to file an Income Tax Return (ITR). TDS may be deducted on various types of income, such as:
- Income from Salaries
- Interest income from saving accounts or fixed deposits in banks.
- Rental income from property.
- Payment received from freelance services or contractual work.
- Dividend from shares.
- Income from commission or brokerage services.
By filing an ITR, you can claim a refund for the taxes that have been deducted on your behalf by tax deductors.
Example:
Sneha is a freelance graphic designer. She earned ₹2,20,000 during the year, but the clients she worked with deducted TDS of ₹5,000. Since her total income is below the exemption limit, however, to claim the refund of ₹5,000 she can file an ITR.
Have Foreign Assets or Income
If you are holding foreign assets such as shares or property or have income from foreign sources, you are required to file an income tax return even if your income does not exceed the basic exemption limit.
Example:
Riya, a 28-year-old software developer, works for an Indian IT company, Infosys, with an annual income of ₹2,30,000, which is below the exemption limit. However, she has also invested ₹50,000 in shares of Nvidia, a US-based company. Even though her Indian income is not taxable, Riya is required to file an ITR because she holds foreign assets in the form of shares.
Deposited More than ₹1 Crore in a Bank Account
If you have deposited more than ₹1 crore in a savings bank account or current bank account, you are required to file an income tax return, irrespective of your total income.
Example:
Mohit, a businessman, deposited ₹1.2 crore in his saving bank account after selling his old property. His total annual income is only ₹2,40,000, but since his bank deposits exceed ₹150 lakhs in a savings bank account crore, he is required to file an ITR.
Spent More than ₹2 Lakh on a Foreign Trip
If you have spent more than ₹2 lakh on foreign travel during a financial year, you are required to file an Income Tax Return (ITR). This includes expenses for trips taken for leisure, business, or other purposes. It’s important to monitor these expenses, as they create an obligation to file an ITR, regardless of your income in India.
Example:
Ram and his family went on a vacation to Dubai, spending ₹3 lakh on travel and accommodation. Despite his annual income which is below ₹2,50,000, Raj must file an ITR because of his foreign travel expenses.
Electricity Bill Exceeds ₹1 Lakh in a Year
If you have spent more than ₹1 lakh on your electricity bills during the financial year, you are required to file an ITR.
Example:
Simi runs a home-based bakery business and has high electricity consumption for her operations. Her annual electricity bill amounts to ₹1.2 lakh. Even though her taxable income is below the basic exemption limit, she must file an ITR because her electricity bill expenditure exceeds ₹1 lakh.
Individuals with Losses They Wish to Carry Forward
If you have incurred any loss in the current financial year and wish to carry it forward according to the set-off and carry-forward rules, it is mandatory to file an ITR to be eligible to carry forward the loss and set it off in the subsequent years.
Example:
Rahul invested in the stock market and faced a capital loss of Rs. 50,000 in the financial year 2024-25. To carry forward this loss for offsetting against future capital gains, Rahul needs to file his income tax return by the due date for the financial year 2024-25, i.e., assessment year 2025-26.
Conclusion
Income tax law highlights that filing an income tax return is not solely based on earning above a certain limit. It also considers your spending, savings, and investments. Understanding these rules is essential for remaining tax-compliant and can also help you plan your finances more effectively.
A qualified financial advisor can help you to understand whether you are required to file ITR or not. To optimise your taxes, download the 1 Finance app and book a consultation with a qualified financial advisor for a seamless, hassle-free tax planning experience.
