In India, the government sets an income threshold, known as the basic exemption limit, below which individuals are not liable to pay income tax. As of the current tax year, the basic exemption limit stands at Rs. 2.50 lakh for individuals below the age of 60. However, even if your income from each source remains below this threshold, you may still need to file your tax returns for certain reasons.
- If you have paid taxes, such as through TDS (Tax Deducted at Source), and are eligible for a refund, filing your tax return becomes necessary to claim the refund.
- If you have incurred losses in any of your income sources, such as business or capital gains, filing a tax return becomes essential to carry forward these losses to future years. This can help offset future taxable income and reduce your tax liability.
- If you hold any foreign assets or generate income from abroad, regardless of the amount, you must file your tax returns and report such assets or income under the Foreign Asset and Income Reporting provisions.
- Failure to file your tax returns when required can attract penalties and consequences, including late filing fees and interest on taxes owed.
Benefits of Voluntary Tax Filing
Even if none of the above circumstances apply to you, voluntarily filing your tax returns can have several benefits:
- Building a Financial History: Beneficial when applying for loans or other financial transactions in the future.
- Ease of Compliance: Makes it easier to manage your taxes as your income increases.
- Income Verification: A record of your tax returns being submitted can attest to your income and stability.
While each income source falling below the taxable threshold may relieve you from the obligation to pay income tax, there are situations where filing tax returns is mandatory. Remember, being aware of and fulfilling your tax obligations is a responsible and essential part of being a law-abiding citizen.
Look up more articles here for a smooth first time tax-filing process. All the best!
