Mandatory ITR Filing even if the Income is below the Basic Exemption Limit

India's population is more than 136 crores, but only around 8 crore people pay income tax. This means that the taxpayers constitute only about 5.8 percent of the total Indian public. A lot of people do not file an income tax return (ITR) generally because of one prime excuse – their income is under the basic exemption limit. However, according to the taxation rules, several persons are mandatorily required to file an income tax return if they have incurred high value financial transactions with potential tax liabilities. The Indian Government has made some changes in the rules regarding ITR filing. According to the new Rule 12AB notified by CBDT, a person will have to file an ITR even if their income in a financial year is under the basic exemption limit. 
 
The Indian government has implemented the non-filers monitoring system (NMS) to identify such persons that may be required to file an ITR. Failure to file an ITR in case a person has potential tax liabilities can lead to penalties along with serious criminal charges. This article intends to guide the readers about the new changes regarding the mandatory ITR filing.

Existing (Earlier) Rules for Mandatory ITR Filing

The seventh proviso to Section 139 of the Finance Act, 2019, provides certain conditions that make filing an income tax return mandatory for a person even when the income of an individual is less than the basic exemption limit. These criteria include situations when a person:
 
1: deposits one crore or more in a current account.
 
2: incurs an expenditure of more than Rs 2 lakh on foreign travel.
 
3: has electricity consumption of more than Rs 1 lakh in a year.

New/Additional Criteria for Mandatory ITR Filing

Central Board Direct Taxes (CBDT) has notified vide Notification No. 37/2022 dated 21-04-2022 of additional cases which require mandatory ITR filing of Income-tax returns even if the income of a person is below the basic exemption limit. The new notification will be applicable for ITR filing of Financial Year 2021-22 (Assessment Year 2022-23). The additional cases are as follows:
 
1: Total sales/turnover/gross receipts of a business are more than Rs 60 lakh during the previous year.
 
2: Gross receipts of a professional are over Rs 10 lakh during the previous year.
 
3: Total TDS/TCS during a financial year is Rs 25,000 or more (in the case of senior citizens, the applicable limit is Rs 50,000).*
 
4: Total deposits in saving bank account are Rs 50 lakh or more during the previous year.
 
* Important Point: Even when the TDS/TCS is less than the above-mentioned limit, it is advisable for a person to file an ITR as such people might already be under the radar of the tax authorities through the NMS system. Filing an ITR can prevent from the charges of non-compliance, moreover, they can also get a refund because of filing an ITR.

Other Cases where it is mandatory for a person to file an ITR

As per the Income Tax Act, 1961, a person must file an Income Tax Return in India in the following cases:
 
1: If a person’s gross total income in any financial year (before allowing any deductions under sections 80C and 80U) exceeds Rs 2.5 lakh (in the case of senior citizens – aged above 60 but less than 80 – the limit is Rs 3 lakh and for super citizens – aged above 80 – the limit is Rs 5 lakh).
 
2: A Company or a firm including LLP is mandatorily required to file an ITR irrespective of their income levels.
 
3: If an individual wants to claim an income tax refund.
 
4: If a person wants to carry forward a loss under the income head.
 
5: It is compulsory to file an income tax return if a person is a resident individual of India and has an asset or financial interest in a business located outside India.*
 
6: If you are a resident of India as well as a signing authority in a foreign account.*
 
7: A person is required to file an ITR when they receive income derived from property held by a trust for religious or charitable purposes/ a political party/ research institution/ news agency/ education/medical institution/ trade union/ a hospital/ infrastructure debt fund/ any authority/ body or trust.
 
8: In case of a foreign company getting treaty benefits on any transaction in India.
 
9: Proof of an ITR may be required in some cases of loan or visa application.
 
* Point 5 and 6 are not applicable to Non-Resident Indians (NRIs) and Residents but Not Ordinary Residents(RNORs).

How to file an ITR?

Although an Income Tax Return can be filed online using the internet (in which case it will be called E-filing), however, if you are facing any doubt or issue while filing an ITR, it is best to consult a Chartered Accountants firm (CA firm) for assistance. There are several CA firms in India that provide services regarding the assessment of income tax besides filing income tax returns.

What is the penalty for not-filing an ITR?

According to the new rules effective from FY 2017-2018, Section 234F of the Income Tax Act, 1961 makes a late filing fee applicable if a return is filed after the due date. The maximum penalty can range from Rs 1,000 to Rs 5,000, depending upon the income level of the taxpayers. According to the Supreme Court of India, all taxpayers are mandatorily required to file an income tax return and non-compliance can also lead to prosecution (imprisonment plus fine). Tax evasion is a crime and the Income Tax Department has a provision for rigorous punishment for tax evaders. As per the Section 139 of the Income Tax Act, 1961, a person is required to file an ITR voluntarily.

Lets conclude:

According to the tax authorities, the new measures are very stringent, which will definitely require many taxpayers to mandatorily file an ITR despite having an income under the basic exemption limit. With the new rules, the government intends to assess all the taxpayers incurring high-value transactions but not filing an income tax return because their taxable income is less than the minimum exemption limit. The new rules will undoubtedly increase the number of income tax returns filed in India, ultimately leading to more transparency in reporting income.

In conclusion, the low percentage of taxpayers in India's population highlights the need for stricter enforcement of income tax regulations. The recent changes in the rules, such as the non-filers monitoring system, emphasize the importance of filing an income tax return even if the income is below the basic exemption limit. Failure to comply can result in penalties and criminal charges. It is crucial for individuals to stay informed about the mandatory filing criteria and seek assistance from professionals if needed. Non-compliance with tax laws can lead to serious consequences, making it essential for all eligible individuals to file their income tax returns.

Take charge of your financial responsibilities and stay compliant with the new ITR rules – file your income tax return now! Drop us Mail for more queries: info@manishanilgupta.com.

Disclaimer: The information provided in this blog is for general purposes only and should not be considered as professional advice.