PROSPERR.IO

Let me tell you about a conversation I had last year.

A retired schoolteacher mid-sixties, lives in Pune called in through a relative of mine. She'd been told by her neighbour, with complete confidence, that since her pension was only ₹1.8 lakh a year, she had no business filing any income tax return. "Below the limit means you're free," the neighbour had said. Case closed.

What this woman didn't know and what her well-meaning neighbour had no idea about — was that she'd made a fixed deposit with her retirement gratuity, the interest alone was pushing her gross income past the threshold, and on top of that she'd taken a trip to Singapore to visit her son. That foreign travel alone, under the Seventh Proviso to Section 139(1), was enough to make her a mandatory filer regardless of what her income was.

She wasn't in trouble. Not yet. But she would have been.

I tell this story because it captures something I've seen play out dozens of times over three decades in the Department — the gap between what people think the filing rules say and what they actually say. That gap is where most honest, well-intentioned taxpayers get caught.

So Let's Start From Scratch

The basic rule, yes if your gross total income exceeds the exemption limit, you file. Everyone knows that part, or thinks they do.

Under the old tax regime, the basic exemption is ₹2.5 lakh. For individuals above 60, it's ₹3 lakh. Above 80, it's ₹5 lakh. Under the new default regime introduced in recent years, the base limit is ₹3 lakh for everyone regardless of age.

But here's the thing people consistently miss: when the law says "gross total income," it means before you've applied your deductions. Before your 80C investments, before your 80D health insurance premiums, before your 80G donations. Those deductions reduce what you owe — they don't reduce whether you have to file.

So if your salary or pension or rental income or whatever combination adds up to ₹3 lakh before deductions, you need to file, even if your 80C investments bring the actual taxable number down to ₹1.5 lakh. The gross figure is what triggers the obligation. Not the net.

This one misunderstanding alone explains a huge percentage of the "I didn't think I had to file" situations I've seen.

Now the Part Nobody Talks About

Even if your income is genuinely, comfortably below every threshold say you're a homemaker, or a student, or someone who just hasn't had a working year there are still situations where the law says you must file.

Parliament added what's called the Seventh Proviso to Section 139(1) a few years ago. The whole point of this addition was to capture something income-based thresholds naturally miss: high economic activity in people whose declared income appears low.

Think about it from the Department's perspective. A person shows ₹1.8 lakh in income. But they deposited ₹1.5 crore in their current account last year. Or they spent ₹3 lakh on foreign trips. Or their electricity bill ran to ₹1.2 lakh. These numbers don't match, and the system is designed to notice.

Under this proviso, any of the following makes you a mandatory filer — income level doesn't matter:

Depositing ₹1 crore or more into one or more current accounts during the year. Spending more than ₹2 lakh on foreign travel, whether for yourself or for any other person. Paying more than ₹1 lakh in electricity bills across the year. Running a business with turnover above ₹60 lakh, or a profession with receipts above ₹10 lakh. Having TDS or TCS of ₹25,000 or more deducted or collected during the year — ₹50,000 if you're a senior citizen. Holding ₹50 lakh or more in one or more savings bank accounts.

One trigger is all it takes. Just one.

And before you say "₹1 crore in current accounts, that's not me" — the foreign travel one catches people more than you'd expect. Two international trips in a year, business class, and you're past ₹2 lakh without trying very hard.

The Foreign Asset Rule Is in a Category of Its Own

This one I cannot stress enough. Particularly for people who've worked abroad, or who have family members gifting them foreign accounts, or who were once on an employment visa somewhere and opened a local bank account that they've since forgotten about.

If you are a Resident and Ordinarily Resident of India which, again, covers most people living here full-time and you held any foreign asset at any point during the financial year, you must file. There's no threshold. There's no "it was a small amount." The obligation is absolute.

Foreign assets include bank accounts outside India, shares or securities in foreign companies, immovable property abroad, any financial interest in a foreign entity, and signing authority over a foreign account even if you're not the owner.

The penalties for not disclosing these under the Black Money Act, 2015 are not trivial. We're talking ₹10 lakh per asset per year in some cases. I've watched otherwise straightforward cases become extraordinarily complicated because someone forgot to declare a dormant UK account they hadn't used in seven years. The value was almost nothing. The penalty exposure was not.

Declare everything. Every single foreign asset, every year, in Schedule FA of your ITR. This is one area where "I didn't know" offers very little protection.

The Deduction Trap — One More Time, Because It Matters

I want to come back to this because I've seen it catch salaried employees who are otherwise diligent about their taxes.

You're earning ₹4.5 lakh a year from salary. You've put ₹1.5 lakh in PPF and ELSS under 80C. You pay health insurance premiums of ₹25,000 under 80D. After all that, your taxable income is somewhere around ₹2.25 lakh below the basic limit.

A surprising number of people in this situation decide not to file because they believe their taxable income being below the limit means no filing is required. That's wrong. Your gross total income was ₹4.5 lakh, which is above the threshold. The obligation to file is determined at that gross level.

What does filing in this situation do for you? Typically, it results in a refund because TDS was likely deducted from your salary based on your gross income, and now that you've shown your deductions, you've overpaid. The refund doesn't show up automatically. You have to file to claim it.

Voluntarily Filing When You Don't Have To — Is It Worth It?

Short answer: often yes.

Even in years where you have no technical obligation to file, there are practical reasons to do it anyway.

Three years of ITR filings is a standard requirement for most country visa applications. UK, US, Schengen, Canada — the embassies want to see income proof, and a filed ITR is the cleanest, most credible document you can offer. A salary slip or bank statement helps, but a filed return with acknowledgement is in a different category of credibility.

Home loan sanctions, especially for larger amounts, are smoother when you have ITR history. The same goes for car loans, credit card applications, and business financing.

If you've had capital losses — say your equity portfolio took a hit in a particular year — you can only carry those forward to set off against future gains if you filed on time. An unfiled year means those losses die. They don't accumulate silently waiting for you.

And if any TDS was deducted — on bank FD interest, on rent you received, on any freelance payment — the only route to getting that money back if your actual liability is lower is to file and claim the refund. It doesn't come to you otherwise.

Missing the Deadline What Actually Happens

July 31 is the standard deadline for individual taxpayers not covered by audit requirements. For FY 2024-25, that's July 31, 2025. Sometimes the CBDT extends it. Don't count on that.

If you miss July 31 but file before December 31 of the same assessment year, you're filing a belated return under Section 139(4). Late fee is ₹5,000 under Section 234F — or ₹1,000 if your income is below ₹5 lakh. Interest under Section 234A runs at 1% per month on any unpaid tax.

What you lose with a belated return, apart from the fee: the right to carry forward most losses. Capital loss, business loss — if the return wasn't filed on time, these lapse. That can be a significant hit, especially in volatile market years.

Beyond December 31 and up to 48 months, there's the updated return route under Section 139(8A). It comes with an additional tax levy — 25% extra on tax and interest if filed within 12 months of the assessment year end, 50% if filed after that. Still better than a scrutiny notice.

The Annual Information Statement Is Watching

One more thing worth knowing. The Department's Annual Information Statement AIS aggregates data from banks, registrars, mutual fund houses, forex dealers, and dozens of other sources. If you've had any meaningful financial transaction, there's a reasonable chance it's in your AIS.

This means the Department often knows about your transactions before you've disclosed them. The mismatch between what AIS shows and what's been declared or not declared is one of the primary triggers for automated notices these days.

Filing correctly, on time, with all income and high-value transactions disclosed, is not just a legal obligation. Given how much data the Department now has access to, it's also simply the lower-risk path.

Bringing It Together

Here's the summary, plainly stated.

File if your gross total income — before any deductions — exceeds the exemption limit for your age and regime. File regardless of income if you've crossed any of the Seventh Proviso thresholds: ₹1 crore in current accounts, ₹2 lakh in foreign travel, ₹1 lakh in electricity, ₹60 lakh in business turnover, ₹10 lakh in professional receipts, ₹25,000 in TDS/TCS, or ₹50 lakh in savings deposits. File without exception if you hold any foreign asset as a Resident and Ordinarily Resident. And consider filing voluntarily even when none of the above apply — for refunds, loss carry-forward, and the documents you'll need for loans and visas.

The schoolteacher in Pune? She filed eventually. Got a small refund on the TDS that had been cut on her FD interest. And she reported her Singapore trip correctly. No drama, no notice, no problem.

That's what getting this right looks like. Quiet. Uneventful. Exactly as it should be.

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Disclaimer: This article reflects the author's personal understanding of the Income Tax Act, 1961. It is for general information only — not professional tax or legal advice. Please speak with a qualified tax advisor for your specific situation.