Filing an Income Tax Return (ITR) is often seen as a complex or unnecessary task, especially for individuals whose income is below the taxable limit. However, the reality is that filing an ITR can benefit you significantly, even when not legally required. Let’s break down one of the most common myths surrounding ITRs and explore why filing one is a smart financial decision.
The Myth:
“Filing an ITR is unnecessary if your income is below ₹2.5 lakhs.”
This is one of the most widespread misconceptions. While the government mandates filing ITR only for individuals whose income exceeds the basic exemption limit, there are several scenarios and benefits that make it worthwhile—and sometimes necessary—to file an ITR.
The Truth: Filing ITR is Beneficial and Sometimes Mandatory
Here’s why filing your ITR matters, even if your income is below the threshold:
1. Claim Refunds
One of the most compelling reasons to file an ITR is to reclaim excess taxes deducted at source (TDS). For instance:
- If you worked part-time or earned interest from a bank account where TDS was deducted, you can only recover this amount by filing your ITR.
Example: Suppose your bank deducted ₹5,000 as TDS on your Fixed Deposit interest. Filing your ITR ensures this amount is refunded if your total income is below the taxable limit.
2. Proof of Income
Filed ITRs are credible proof of your earnings. They are essential for:
- Loan Applications: Banks require ITR documents to assess your repayment capacity.
- Visa Applications: Many countries, including the USA and Canada, ask for your ITR as evidence of financial stability.
Example: If you’re applying for a home loan or a Schengen visa, a consistent record of ITR filings strengthens your case.
3. Carry Forward Losses
Filing your ITR lets you carry forward certain types of financial losses to offset them against future gains.
- This is especially helpful for individuals investing in stocks, mutual funds, or businesses.
Example: If you incur a capital loss of ₹50,000 in one financial year, filing an ITR allows you to use this loss to reduce taxes on capital gains in the subsequent years.
4. When Filing is Mandatory
Even if your income is below ₹2.5 lakhs, the following conditions make it compulsory to file an ITR:
- Foreign Income or Assets: Ownership of foreign assets, income from abroad, or being a director in a company makes ITR filing mandatory.
- Gross Income Exceeds the Exemption Limit: If your income before deductions (like Section 80C) exceeds ₹2.5 lakhs.
- Claiming Deductions: If you want to claim tax-saving investments under Sections 80C, 80D, etc., filing is required.
Benefits Beyond Compliance
Filing ITRs isn’t just about meeting legal requirements—it’s an investment in your financial future. Here’s how:
- Better Financial Discipline: The process of collating income, expenses, and investments encourages better money management.
- Avoid Notices: Filing helps avoid unnecessary scrutiny or notices from the Income Tax Department.
Myth-Busting in Action
By dispelling the myth that ITR filing is unnecessary for low-income individuals, we open the door to a host of financial advantages. The benefits far outweigh the effort involved in filing, especially with digital tools and professional guidance available today.
