Is it mandatory to file Income Tax Return?

Last Updated on August 20, 2021 by Ravi Sankar Robbi

In this article let’s discuss in detail, is it mandatory to file Income Tax Return (ITR) for FY 2020-21 aka AY 2021-22 for Individual tax payers. In addition, we are also going to discuss when you can voluntarily file (though it is not mandatory as per Income Tax Laws) your Income Tax Return.

As per general understanding, every individual has to file income tax return (ITR) if their total income is more than the basic exemption limit.

But there is a lot of confusion regarding
(i) which income has to be considered? (whether it is Gross Total Income or Total Income)
(ii) what if i don’t have any tax liability?
(iii) what if TDS been already deducted by employer?

In simple words: As per sec 139(1) of Income Tax Act, every individual whose total income before deducting Chapter VI-A deductions, certain sec 10 exemptions & Capital Gain exemptions is more than the basic exemption limit, then such individual has to file his/her income tax return mandatorily.

Introduction

Before going into the main topic, first let’s quickly understand what is an Income Tax Return (ITR)?

“Income Tax Return” is a form through which we communicate our income or loss details of a particular financial year and taxes paid on such income to the Income Tax Department. Depending on the nature of income & category of an assessee, different types of ITR forms are prescribed by the department. Anyway we are not going in-depth regarding ITR forms here, we will discuss about it in another article.

Now at least you know what is an ITR form, Right?

So, Let’s focus on the main topic.

Mandatory filing of Income Tax Return

As per the sec 139(1) of Income Tax Act, Individuals (including NRI) whoever falls under either of the criteria mentioned below need to file their ITR mandatorily.

1. Income criteria
2. Expenditure criteria

Whereas, Resident and Ordinarily Residents (RONR) should also watch out for one more criteria, in addition to the above two criterias. Meaning, for RONR ITR filing is mandatory if they fall under either of the three criterias.

Let’s elaborate further.

Income criteria

If your Total Income before deducting the following exemptions/deductions is more than the basic exemption limit (refer image below) then ITR filing is mandatory.

• Chapter VI-A deductions (i.e., deductions from section 80C to 80U)
• Section 10 deductions – 10(38), 10A, 10B, 10BA
• Capital Gain deductions – 54, 54B, 54D, 54EC, 54F, 54G, 54GA, or 54GB

It means, you need to add back above deductions/exemptions (if any) claimed by you while arriving at your Total Income to determine the applicability of mandatory ITR filing (Remember both Total Income and Taxable Income are same & often used interchangeably, which means Gross Total Income less Chapter VI-A deductions)

Basic exemption limits under both the tax regimes are given below for quick reference:

Don’t worry. Let’s run through a quick example:

Assume your salary income is Rs. 5,00,000 and interest income is Rs. 50,000 for FY 2020-21 (Age is 40 yrs). Out of such income, you paid Rs. 80,000 for LIC & Rs. 20,000 for Medical Insurance u/s 80D. Accordingly, your Taxable income will be as follows:

This is the procedure for calculating your taxable income on which you need to pay taxes. However, for determining the eligibility to file ITR you should not consider Taxable income as the criteria. As mentioned above, we need to add back the deductions/exemptions claimed for arriving at your taxable income. After such addition, if your income is more than basic exemption limit then you need to mandatorily file your Income Tax Return. Otherwise, not required.

So, if we add back deduction amount of Rs. 1,00,000 (i.e. LIC Rs. 80,000 + Medical Insurance Rs. 20,000) to your taxable income of Rs. 4,50,000, it will be Rs. 5,50,000. Since, Rs. 5,50,000 is more than your basic exemption limit (i.e. Rs. 2,50,000) you need to mandatorily file ITR.

But if you observe from taxability perspective, since your taxable income is below 5 lakhs you are eligible for sec 87A rebate and hence your tax is ZERO!!!

You might be wondering, “why do I need to file ITR mandatorily when my tax is ZERO”?

You are right. But the thing is, criteria for determination of your TAX LIABILITY & ITR FILING is completely different. In case of TAX LIABILITY, it is total income after all exemptions and deductions. Whereas in case of ITR filing, it is total income before certain exemptions and deductions. That’s why you need to file your ITR mandatorily even though your tax liability is ZERO.

Even the same thumb-rule is applicable for tax deduction (TDS) on your income i.e. though tax is already been deducted on your income, still you need to file your ITR mandatorily if you are covered under any of the criteria.

Expenditure criteria

For any reason, if you are not falling under Income criteria then you need to check for Expenditure criteria mentioned below. Coverage under either of these criterias will make ITR filing mandatory.

Following are conditions under Expenditure criteria & either of the conditions need to be satisfied for mandatory filing:

1. Deposited an amount (or aggregate of amount) more than Rs. 1 crore in one
   or more current account maintained with a bank or a co-operative bank or
2. Incurred foreign travel expenditure of more than Rs. 2 lakh for self or any other
   person or
3. Incurred electricity expenditure of more than Rs. 1 lakh

Additional criteria

This criteria is only for Resident and Ordinarily Resident (RONR). If your Residential Status is RONR for any previous year, then in addition to the above two criteria you also check for the following:

1. Beneficial owner or Beneficiary of any asset (including financial asset) located outside India or
2. Signing authority in any account located outside India

If you don’t fall under any of the above mentioned criteria then you need not file ITR mandatorily. In such case, you can file your ITR voluntarily if you wish to do so.

Key Point: If you fall under any of the above discussed criteria, then ITR filing is mandatory even though you don’t have any tax liability or TDS been already deducted on your income.

Voluntary filing of Income Tax Return

Voluntary filing is, to file your ITR for any of the following reasons even though you are NOT bound to do so under Income Tax Act. It can be:

1. To claim income tax refund.
2. To carry forward loss under any head.
3. To claim as a proof of income or Networth
4. For obtaining any loan from Financial Institutions
5. For VISA processing

Income Tax Return filing due date

If you want to file your ITR (as a part of mandatory requirement or voluntarily), make sure to file it within the due dates specified by Income Tax Act.

Due dates for different categories of Individuals as extended by CBDT vide press release:

Consequences for Non filing of Income Tax Return

If ITR filing is mandatory for you, better not to miss the filing. Otherwise, you need to face the following consequences:

• Loss (except loss from House Property) cannot be carried forward
• Late filing fee will be levied u/s 234F
• Interest will be levied u/s 234A
• Exemptions under sections 10A, 10B, are not available.
• Part-C deductions of Chapter VI-A shall not be available.
• You may get notice u/s 142(1) from the department.

Now, let’s summarise.

Conclusion

As per Income Tax laws, ITR filing is NOT compulsory for all. It is mandatory only for individuals who fall under any of the two criteria mentioned above. If you are RONR, don’t forget to check additional criteria as well (when you doesn’t fit under both Income & Expenditure criteria).

If you does not fall under mandatory ITR filing category, you can even file your ITR voluntarily. In either of the cases, make sure to file your returns within due dates so that you will be free from certain penalties/consequences stipulated under the act.

Hope the concept is clear now.

Still having doubts? Don’t hesitate to reach out through comments. See you with another interesting topic very soon.

Thank you for your time.

Ravi Sankar Robbi

Author is a Qualified CMA with an experience of more than 8 years in the industry. He is also an All India Rank holder in both Inter (AIR-26) & Final (AIR-46) examinations of ICAI. He loves to writes articles on Income Tax & GST.