Since tax is deducted from most of the payments, recipient of such income like salaries and interest on bank deposits are under the impression that they are not required to file their income tax return (ITR). Payment of tax and filing of an ITR are two separate and distinct legal obligations independent of each other. Discharge of one does not imply discharge of another. Since the extended due date of filing of ITR, 30th September, is fast approaching, I thought of clearing clouds around this subject. There are income and non-income criteria mandating you to file an ITR. Let us discuss.
Income-based criteria for mandatory requirement to file ITR
One has to file an ITR in case aggregate of all his income exceeds the basic exemption limit. There are different basic exemption limits applicable based on age. All those who are below 60 years have to pay tax only if their taxable income exceeds Rs. 2.50 lakhs. Those over 60 but below 80 enjoy exemption upto Rs. 3 lakhs. Very senior citizens who have already crossed 80 years enjoy free income upto Rs. 5 lakhs every year.
While arriving at the above threshold limits for filing the ITR various deduction available under Chapter VIA like under Section 80C, 80 CCD, 80D, 80G 80TTA, 80 TTB etc. have to be ignored. Likewise amount of exemption claimed in respect of long term capital gains under Section 54, 54F, 54EC etc. for reinvestment in residential house or capital gains bonds though exempt from payment of tax but have to be added to your taxable income to determine the threshold limit for ITR filing.
For example, in some of the cases though your gross total income may exceed the basic exemption limit, making you liable for filing of ITR but due to various deductions, the taxable income may come down below 2.50 lakh and thus no liability to pay any tax. Likewise, you may not have any tax liability if your net taxable income does not exceed five lakhs due to rebate available under Section 87A but you may still have to file an ITR.
Non-income criteria for mandatory Requirement to file ITR
In addition to the income criteria, there are two set of non-income criteria requiring you to file an ITR even if you are otherwise not required.
First set of conditions apply only to persons who are resident under the tax laws. So in case you are a resident for tax purpose you have to file an ITR irrespective of level of your income if you either have beneficial interests in any asset outside India or you have a signing authority in respect of any account outside side India. The beneficial interest need not necessarily be in an immovable asset. It may even be in a movable asset like shares, bonds, ESOPs of foreign company. As regards signing authority in respect of an account the value or balance in the account is irrelevant. Even if you have a bank account with zero balance outside India, you still have to file your ITR here in India even if otherwise you are not required to do so. For example, you had opened an account while being outside India have come back for good without closing it, you are covered under this requirement. Likewise you have been allotted EOPs of a foreign company, which may be holding company or a subsidiary company of your employer, as your compensation package,; you are caught in this net. All those NRIs, who have come back to India for good leaving behind assets in foreign country are hit by this.
The second set of conditions apply to all the persons whether tax resident or not. So you have to file an ITR if you have deposited more than one crore rupees in one or more current bank account maintained with either bank or cooperative bank in India during the year. Please note it does not cover only cash deposits but covers deposits in any form in aggregate in all the current accounts. Likewise, if you have paid more than two lakhs for foreign travel of any person including yourself, you have to file an ITR. Foreign Travel for this purpose does not cover travels to neighbouring countries or for religious purposes. And lastly you have to file an ITR if you have incurred electricity cost for an amount exceeding rupees one lakhs during the year. It is not necessary that the electricity connection stands in your name so even if you are using a rented residence/office you have to file an ITR if aggregate of such payment during the year exceeded one lakhs during the year.