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Tax season can be confusing, especially for those with non-taxable income. The question that arises is: should you file an Income Tax Return (ITR) even if your income falls below the taxable limit? While it might not be mandatory, there are hidden advantages to filing a nil ITR, irrespective of the tax regime you choose—the old tax regime or the new tax regime introduced in 2020.

Understanding Taxable Income, Tax Regimes, and ITR Filing Requirements

In India, the government sets an income exemption limit, below which you don't have to pay income tax. This limit varies depending on your age group for the 2023–24 Assessment Year (taxes filed in 2024):

Tax Rebate under section 87A 

However, filing an ITR isn't just about exceeding this limit. Here are some scenarios where filing an ITR, even with non-taxable income, becomes crucial:

• Income from Other Sources: Even if your salary income falls below the limit, income from sources like house rent, interest on investments, or capital gains might push you above it. In such cases, filing an ITR is mandatory.
• Claimed Tax Deductions (TDS): If tax was deducted at source (TDS) on any income, like interest from a bank deposit, you need to file an ITR to claim a refund for the excess TDS.

Also read- Updated Return: A way to respond tax Notices 

Old Tax Regime vs. New Tax Regime 

India offers taxpayers the option to choose between two tax regimes:

• Old Tax Regime: This traditional regime allows for a wider range of deductions and exemptions under various sections of the Income Tax Act. However, it generally has higher tax rates compared to the new regime.
• New Tax Regime: Introduced in 2020, this simplified regime offers lower tax rates. However, it comes with the disadvantage of eliminating most deductions and exemptions available under the old regime.

A Glimpse into Old vs. New Tax Regime

Here's a simplified comparison of the Old vs. New Tax Regime for the 2023–24 Assessment Year (AY 2024–25):

Under the Old Tax Regime

Under the New Tax Regime

Benefits of Filing a Nil ITR (Applicable to Both Regimes)

While filing a nil ITR might seem like extra work, it offers a surprising set of advantages, irrespective of the tax regime you choose:

• Proof of Income: Your ITR acts as an official document verifying your income. This can be extremely helpful when applying for loans, visas, or other financial transactions requiring proof of financial standing.
• Claiming Tax Refunds: Mistakes in TDS deduction happen. Filing an ITR allows you to claim a refund for any excess tax deducted during the year.
• Carry Forward of Capital Losses: If you incurred capital losses while investing in stocks or mutual funds, filing an ITR lets you carry forward these losses and offset them against future capital gains, reducing your tax liability.

Example: The Power of Nil ITR for Students

Let's say Mukul, a student, earns ₹20,000 from a summer internship. This falls below the taxable income limit. However, TDS of ₹200 was deducted on his income. By filing a nil ITR, Mukul can claim a refund for this ₹200, maximizing his financial gain.

Is it possible to go without filing a Nil Return?

Those whose total income exceeds the basic exemption limit must file income tax returns. It is still recommended that you file your income tax return if your total income does not exceed the basic exemption limit, even if it is not mandatory.

How to File a Nil ITR for Non-Taxable Income

The process for filing a nil ITR is similar to filing a regular ITR. You can choose to file online or offline. Several online portals and resources can guide you through the filing process. File your ITR here. 

Conclusion

While filing an ITR might not be mandatory for everyone, its benefits extend far beyond just tax payments. From claiming tax benefits and building a credit history to smoothing loan approvals, a nil ITR can be a valuable tool in your financial toolbox. So, the next time tax season rolls around, consider the hidden advantages of filing a nil ITR, even if your income falls below the taxable limit.

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[Disclaimer: The article is only for educational purposes, covering limited aspects of relevant provisions of the Income-tax Act. The relevant provisions of the Income-tax Act may be referred to, for complete understanding.]