Many people are confused whether they need to file the return of income or not, or when they need to file the return of income.
Also in one of our earlier post we had discussed the various myths regarding the return of income for income tax return and there we had discussed a few basic points but here let’s discuss when an individual or any other assessee need to file a return of income or when they should file return of income.
Let’s first see some theory points or directly from the provisions of Income Tax act where section 139 provides the requirement for one to file the return of income and accordingly an individual or HUF a body of individuals or association of persons need to file the return of income when the total income crosses 2.5 lacs. Whereas, a company or partnership firm or LLP needs to file the return of income every year whether or not their income is crossing a certain limit.
As we discussed in our earlier post, many people believe that they don’t need to file the return of income if they don’t have to pay tax but that’s not true, return of income is not for the payment of tax but it’s actually to report your income to the government (this is mostly seen in case of salaried employee).
Let’s have a look at various points relating to Income tax, Income Tax return and who needs to file it:
1. The first question which comes to the mind is how to calculate income of Rs. 2.5 lakh is it before deduction under Chapter VI-A or after that or exemption under section 54. Answer to same is provided under sixth proviso to Section 139(1) which is as under:
“Every person, being an individual or a Hindu undivided family or an association of persons or a body of individuals, whether incorporated or not, or an artificial juridical person, if his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year, without giving effect to the provisions of clause (38) of section 10 or section 10A or section 10B or section 10BA 7[or section 54 or section 54B or section 54D or section 54EC or section 54F or section 54G or section 54GA or section 54GB] or Chapter VI-A exceeded the maximum amount which is not chargeable to income-tax, shall, on or before the due date, furnish a return of his income”
2. Thus, even if you are not liable to pay any tax by taking benefit of any deduction, or if your income is below 5 lacs then in that case also once your income crosses 2.5 lacs you need to file the return of income.
3. As we know there are various TDS provisions because of which TDS is deducted even when the income is of Rs. 50000 in case of interest or even 50,000 of 40,000 in case of professional fees so in that case one should file his return of income to get the refund of such TDS deducted.
4. There are situations where people many a times incur losses while investing into stock markets or even doing some trades in stock market and they think that since they have made a loss they are not required to file the return of income and there is no benefit of filing the return but that’s not true because if they are making a loss, they will be able to carry forward the loss and set it off against a profit in future only when they file Income tax return within due time and which will help them reduce their taxes in future but if they don’t file the return of income within the due date they might loose the chance to carry forward the loss and hence pay more taxes even in future thus in case of loss also it’s important to file your return of income.
5. This could be a most important point in the current situation where people are investing into the foreign shares where the shares are listed outside India or when the employee get the shares of their company under ESOP or RSU scheme, which is listed outside India in that case as the foreign shares are foreign assets and in which case even if your income is below 2.5 lakhs then also you need to file the return of income since you hold foreign assets and by virtue of fourth proviso of section 139(1) Income Tax act, if a person holds a foreign asset or a foreign investment he needs to file his return of income even if the income is below 2.5 lacs.
6. Further a new 7th proviso has been added by Budget 2020 according to which even if your total Income is below Rs. 2.5 lakh but if you fulfill any of the below conditions then also you need to file return of income which are as under:
(i) has deposited an amount or aggregate of the amounts exceeding one crore rupees in one or more current accounts maintained with a banking company or a co-operative bank; or
(ii) has incurred expenditure of an amount or aggregate of the amounts exceeding two lakh rupees for himself or any other person for travel to a foreign country; or
(iii) has incurred expenditure of an amount or aggregate of the amounts exceeding one lakh rupees towards consumption of electricity;
Penalty/ Late fees for not filing return of income:
Further if you were liable to file Income tax return and didn’t file the same then there could be a late fees in the range of Rs. 1,000 to Rs. 10,000 u/s 234F, which you will have to pay in addition to tax and interest if any.
Also by filing return of income you are creating a trail of your sources of income which could be helpful for proving your creditworthiness and to apply for loan.
Thus, this are various important points which one needs to keep in mind while deciding whether he needs to file return of income or not.
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