The basic exemption limit refers to the minimum income threshold below which individuals are not required to file an income tax return. The limit varies depending on the age of the taxpayer and is subject to change each financial year. As of the financial year 2022-23, the basic exemption limit for senior citizens i.e. individuals who are below the age of 60 years is Rs 2.5 lakh.
Determining Your Taxable Income
To determine whether your income exceeds the basic exemption limit, you need to calculate your taxable income. It is the total income earned during the financial year minus eligible deductions and exemptions allowed under the Income Tax Act, 1961. Some common sources of income include salary, income from house property, capital gains, and interest on savings or fixed deposits.
Income Tax Return Filing Requirement
If your taxable income crosses the basic exemption limit, then you are required to file an income tax return. For example, if your total income for the financial year 2022-23 is above Rs 2.5 lakh after deductions, you must file an income tax return.
Benefits of Filing Income Tax Returns
- Proof of Income: Filing an income tax return provides official documentation of your income, which can be useful for various purposes like applying for loans, visas, or scholarships.
- Claiming Refunds: If you have paid taxes in excess of your tax liability, filing an income tax return allows you to claim a refund.
- Compliance and Avoidance of Penalties: Filing income tax returns ensures compliance with the law, avoiding penalties and legal consequences associated with non-compliance, such as late filing fees and interest on taxes due.
- Building a Financial History: Consistently filing income tax returns demonstrates your financial discipline and helps build a financial history, which can be beneficial for future financial endeavors.
Understanding the minimum income threshold for filing taxes is essential to determine whether you need to file an income tax return. By staying informed and fulfilling your tax obligations, you can maintain compliance with the law and make informed financial decisions.
Look up more articles here for a smooth first time tax-filing process. All the best!
