Is ITR filing mandatory?

Filing an Income Tax Return (ITR) is an important responsibility for every taxpayer, but many people often wonder if it is mandatory in every case. The answer depends on various factors such as your income level, age, and sources of income.

What is ITR Filing?

Income Tax Return (ITR) is a form that individuals and entities file with the Income Tax Department to report their income, expenses, deductions, and taxes. It helps the government keep track of tax payments and ensures transparency in financial transactions.

When is ITR Filing Mandatory?

The Indian Income Tax Act specifies various conditions under which filing an ITR is mandatory. Below are some key scenarios where you must file an ITR:

1. Income Threshold Exceeded

ITR filing is mandatory if your total income exceeds the basic exemption limit as defined by the Income Tax Act. For the assessment year 2023-24, the limits are:

• Below 60 years: ₹2.5 lakh
• Between 60 to 80 years (senior citizens): ₹3 lakh
• Above 80 years (super senior citizens): ₹5 lakh

If your total income before any deductions exceeds these thresholds, you are required to file an ITR.

2. Income from More than One Source

If you earn income from sources like capital gains, business, or house property, you are required to file an ITR, even if your income is below the threshold limit.

3. Foreign Income or Assets

Individuals who have foreign assets, income from abroad, or who hold foreign bank accounts must file an ITR irrespective of their total income.

4. Companies and Firms

All companies and firms, regardless of their income or loss, are required to file ITR annually.

5. Tax Deducted at Source (TDS) Refund

If tax has been deducted at the source on your income (like salary, interest), and you are eligible for a refund, you must file an ITR to claim the refund.

6. Income from Cryptocurrencies

As per new rules, income generated from cryptocurrency transactions is taxable in India. If you have earned through crypto trading, filing an ITR is mandatory.

7. Turnover of Business or Professional Income

If your business has a turnover exceeding ₹60 lakh or professional income surpasses ₹10 lakh, you must file an ITR.

8. Specified Investments and Deposits

If you have deposited ₹1 crore or more in a current account, incurred expenditure of ₹2 lakh or more on foreign travel, or paid ₹1 lakh or more for electricity, you are also required to file ITR even if your income is below the basic exemption limit.

Why You Should File ITR Even if Not Mandatory

There are several benefits to filing ITR, even if it’s not mandatory for you:

1. Claiming Refunds: If you have paid excess tax or your income tax has been deducted at the source, filing ITR is necessary to claim a refund.
2. Proof of Income: An ITR is a valid document that acts as proof of income. It is often required for loans, credit cards, or immigration purposes.
3. Carry Forward of Losses: Filing ITR allows you to carry forward business or capital losses to offset gains in future years, which can help in tax savings.
4. Avoid Penalties: Even if filing is not mandatory, failing to file when required can lead to penalties and scrutiny from the tax department.
5. Establishing Financial Credibility: Regular ITR filing helps in building financial credibility, especially when applying for large loans or investments.

Penalties for Non-Filing

If you are required to file an ITR and fail to do so, penalties can be imposed under Section 234F of the Income Tax Act. The penalties are as follows:

• ₹1,000 if income is below ₹5 lakh
• ₹5,000 if income is above ₹5 lakh (if filed after the due date but before December 31)
• ₹10,000 if filed after December 31

Conclusion

Filing an ITR is mandatory for a range of scenarios, particularly when your income exceeds the exemption threshold, you have foreign income, or specific investments and deposits are involved. Even if you fall below the mandatory filing requirements, it’s often a good practice to file your ITR. It not only helps you claim refunds but also builds financial credibility and helps avoid future penalties. Always ensure you file on time and accurately to remain compliant with tax laws.