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File ITR even for zero income

File ITR even for zero income

The benefits of filing taxes are many apart from the fact that we should be responsible citizens of the country

Given the havoc that the Coronavirus pandemic has played on the economy of the country and personal incomes of people, the Government has extended the Income Tax Return (ITR) filing deadline for the financial year (FY) 2019-20 to November 30. However, not many people are aware that they may be liable to file their ITR this time around even if their income was below the taxable limit in FY 2019-20. Though this may make people question the intention of the Government in the face of the hardships being faced by them due to salary cuts and lay-offs, but this has been done in a bid to catch tax evaders. In a bind because of the crumbling global and Indian economy even before the outbreak proved to be the last straw that broke the camel’s back, the Government last year introduced certain criteria from FY20 that make individuals liable to file ITR. The whole idea behind enhancing the return filing criteria is to catch unscrupulous taxpayers where there is a mismatch between the declared income and the expenses incurred by the assessee.

Even though most people tend to believe that filing an ITR is relevant for assessees with income above the tax slab, it has multi-layered importance, irrespective of whether the income is above or below the taxable limit or whether there’s a tax liability or not. Significantly, if the income is below the taxable limit or is “zero” the return is called “nil” return. But it acts as proof of funds accumulated in bank accounts or investments because, even if a person is earning an income below the taxable limit, over the years they create a corpus. In case there is any scrutiny after a few years, it becomes a tiring and lengthy process to prove the source of earnings, without an ITR, which is a legally-accepted proof of income.

Plus, under the seventh proviso to Section 139(1) of the Income-tax Act, 1961, even if the income is below the exempted limit, an assessee will have to file an ITR if they paid an electricity bill of Rs 1 lakh or above during the year; deposited Rs 1 crore or more in one or more current accounts and incurred an expenditure of Rs 2 lakh or more for travel to a foreign country. An individual travelling or planning to travel abroad requires a legal proof of earning. For salaried people, the employer certificate serves as proof. However, for individuals who are self-employed, the ITR can serve the purpose.

In cases where the assessee incurs capital losses during the financial year, the Income Tax Act allows him/her to carry it forward for eight consecutive years to set it off against any future gains. However, to keep track of the losses, it is mandatory to file the return before the due date even if the ITR is a loss return. Without this the losses of the year cannot be carried forward. So, even if there is no income to show, the Income-Tax Department lays it down that you declare the capital losses in your return before the due date.

In case a person has paid taxes over and above what stands payable, considering all the deductions and exemptions allowed, the assessee becomes entitled to a refund from the I-T Department. However, to get this refund, filing an ITR is mandatory. Salaried people usually believe that filing ITR isn’t required because the tax on their income has already been deducted. However, it is possible that the tax deducted and deposited as per Form 16 may be in excess of what should be cut. The employer might not have taken into consideration the actual tax-saving investments, insurances or actual house rent.  In that case, filing the ITR helps to claim a refund.

Although, the Motor Vehicles Act does not make it compulsory to give the ITR while arriving at a compensation in case of disability or accidental death, the ITR is needed in case of self-employed people to establish the income of the person and arrive at the compensation amount.

Also, when a person is applying for loans, be it for a house, car or a personal loan, one of the mandatory documents required to be submitted to the loaning entity include the ITR for the last two-three years as proof of income. This is because ITR helps the lender determine the person’s income, payment obligations and loan repayment capacity. Plus when an individual intends to buy a high life cover, it is common for the insurance company to ask for proof of income. This is primarily done to assess the value of the cover amount that can be allowed to the person. The proof of income could be the salary slip, bank statement or the ITR of the past three-consecutive assessment years. So, for cases where the person doesn’t receive a salary slip or has monthly income disbursed from different groups, ITR serves as the only solid proof of income.

Then there are people who have very small incomes from sources like dividends, bank interest, family pension or tax-free earnings like agricultural income or interest on tax-free bonds. For these people, even though the proceeds are below the taxable limit, filing an ITR serves as proof of income that can be of multi-dimensional use subsequently. The benefits of filing taxes are many apart from the fact that we should be responsible citizens of the country.

(The writer is CEO, IndiaFilings)

File ITR even for zero income

File ITR even for zero income

The benefits of filing taxes are many apart from the fact that we should be responsible citizens of the country

Given the havoc that the Coronavirus pandemic has played on the economy of the country and personal incomes of people, the Government has extended the Income Tax Return (ITR) filing deadline for the financial year (FY) 2019-20 to November 30. However, not many people are aware that they may be liable to file their ITR this time around even if their income was below the taxable limit in FY 2019-20. Though this may make people question the intention of the Government in the face of the hardships being faced by them due to salary cuts and lay-offs, but this has been done in a bid to catch tax evaders. In a bind because of the crumbling global and Indian economy even before the outbreak proved to be the last straw that broke the camel’s back, the Government last year introduced certain criteria from FY20 that make individuals liable to file ITR. The whole idea behind enhancing the return filing criteria is to catch unscrupulous taxpayers where there is a mismatch between the declared income and the expenses incurred by the assessee.

Even though most people tend to believe that filing an ITR is relevant for assessees with income above the tax slab, it has multi-layered importance, irrespective of whether the income is above or below the taxable limit or whether there’s a tax liability or not. Significantly, if the income is below the taxable limit or is “zero” the return is called “nil” return. But it acts as proof of funds accumulated in bank accounts or investments because, even if a person is earning an income below the taxable limit, over the years they create a corpus. In case there is any scrutiny after a few years, it becomes a tiring and lengthy process to prove the source of earnings, without an ITR, which is a legally-accepted proof of income.

Plus, under the seventh proviso to Section 139(1) of the Income-tax Act, 1961, even if the income is below the exempted limit, an assessee will have to file an ITR if they paid an electricity bill of Rs 1 lakh or above during the year; deposited Rs 1 crore or more in one or more current accounts and incurred an expenditure of Rs 2 lakh or more for travel to a foreign country. An individual travelling or planning to travel abroad requires a legal proof of earning. For salaried people, the employer certificate serves as proof. However, for individuals who are self-employed, the ITR can serve the purpose.

In cases where the assessee incurs capital losses during the financial year, the Income Tax Act allows him/her to carry it forward for eight consecutive years to set it off against any future gains. However, to keep track of the losses, it is mandatory to file the return before the due date even if the ITR is a loss return. Without this the losses of the year cannot be carried forward. So, even if there is no income to show, the Income-Tax Department lays it down that you declare the capital losses in your return before the due date.

In case a person has paid taxes over and above what stands payable, considering all the deductions and exemptions allowed, the assessee becomes entitled to a refund from the I-T Department. However, to get this refund, filing an ITR is mandatory. Salaried people usually believe that filing ITR isn’t required because the tax on their income has already been deducted. However, it is possible that the tax deducted and deposited as per Form 16 may be in excess of what should be cut. The employer might not have taken into consideration the actual tax-saving investments, insurances or actual house rent.  In that case, filing the ITR helps to claim a refund.

Although, the Motor Vehicles Act does not make it compulsory to give the ITR while arriving at a compensation in case of disability or accidental death, the ITR is needed in case of self-employed people to establish the income of the person and arrive at the compensation amount.

Also, when a person is applying for loans, be it for a house, car or a personal loan, one of the mandatory documents required to be submitted to the loaning entity include the ITR for the last two-three years as proof of income. This is because ITR helps the lender determine the person’s income, payment obligations and loan repayment capacity. Plus when an individual intends to buy a high life cover, it is common for the insurance company to ask for proof of income. This is primarily done to assess the value of the cover amount that can be allowed to the person. The proof of income could be the salary slip, bank statement or the ITR of the past three-consecutive assessment years. So, for cases where the person doesn’t receive a salary slip or has monthly income disbursed from different groups, ITR serves as the only solid proof of income.

Then there are people who have very small incomes from sources like dividends, bank interest, family pension or tax-free earnings like agricultural income or interest on tax-free bonds. For these people, even though the proceeds are below the taxable limit, filing an ITR serves as proof of income that can be of multi-dimensional use subsequently. The benefits of filing taxes are many apart from the fact that we should be responsible citizens of the country.

(The writer is CEO, IndiaFilings)

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