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Benefit of Filing Tax Return When Below Taxable Limit

As we journey through life, there are many things we are required to do, that we often find ourselves, asking “What is the point?”, without understanding the possible future benefits.  Your annual earnings, especially if below the taxable limit or NIL, may have you considering not filing your tax return.  However, filing your annual tax return is not just for informing the Income Tax Department of your earnings and taxes paid, it has other benefits that you will not realize, till you face the situation in the future and have you regretting your decision to not file your tax return.  Let’s look at why filing your annual tax return is to your advantage.

What is a Tax Return and Why To File?

The income tax return document that many of us file annually is a summary of our earnings, deductions, savings and investments for the financial year.  Filing tax returns is mandatory for all individuals whose earnings are above Rs 2,50,000 and Rs 3,00,000 for senior citizens, before availing of deductions u/s 80C to 80U.  However, for individuals whose annual income falls below the taxable rate, there is a prevailing misconception that the tax return does not need to be filed. But, there are benefits that can be availed, only if the tax return is filed, including a probable refund that may be owed.

Reasons For Non-Filing

While the country is home to more than 121 crore people, only 3.5 crore people file their tax returns.  While the reasons may vary from person to person, let’s look at the common reasons for not filing annual tax returns.


A common reason, individuals refrain from filing their annual tax return is ignorance about the various laws pertaining to income tax e-filing.  The question of which form to use, the deductions available, new updates to laws, deduction amounts etc., deter people from filing their tax returns.  However, as a responsible adult citizen the onus of educating oneself about filing taxes is on him/herself.  If the idea of the task is stressful, then the aid of tax professionals can always be enlisted.


Due to the sheer number of people in the country, the task of catching non-filers by the Income Tax Department(ITD) is monumental.  For this reason, many people become complacent and do not file their taxes regularly. However, it is only a matter of time, before the ITD catches non-filers and serves them with notices and the relevant penalties for non-filing.

Misconception about TDS

The total TDS collected often changes the amount of taxes owing at the end of the financial year, as the total of all the TDS by employer, banks (investments, FD), on rent etc. may change your tax liability.  As a result, you may have to pay more taxes or a refund may be found owing. However, you will never know this if you do not file your tax return.  If it is found you owe taxes, and if it is not paid, then penalties and interest will be levied, costing you more in the long run, than had you filed your tax return on time.

Advantages of Filing

By filing your annual tax return, there is a statement on record showing your total income earned and taxes paid.  This statement not only informs the ITD of your earnings, it is also an official financial record that can be used across various agencies.

Loan Processing

Banks can easily determine your financial position with the income tax returns for the past few years, at the time of loan application.  Before approving the loan, banks need to know you are financially sound and will be able to repay the loan. Therefore, providing your tax return makes loan processing easier.

Visa Processing

Whether immigrating or pursuing a job opportunity abroad, at the time of the visa interview, the officer at the foreign consulate will require you to furnish your tax returns for the past few years.  This is especially true for visas being applied to for Canada, Europe, US, UK.  So, before you even consider going abroad, you need to prepare in advance by making sure your annual returns are filed, dutifully.

Carry Losses Forward

Although, your income might be below the taxable limit, if you have any gains or income from Capital gains, for example, you can carry forward any losses for up to 8 years.  This means in the future you can reduce your tax liability by using your losses from the past 8 years. However, to avail this option, your tax return must be filed.

Tax Refund

A simple reason to file your tax return, is you will never know if you have a refund owing, unless you file your tax return. It’s always nice to receive money back from the government.

Consequences of Not Filing

As per section 271F, the ITD can impose a penalty of Rs 5,000 for not filing your annual tax return.  Moreover, if you are owing taxes, and failed to furnish your tax return, then you will face further penalties u/s 234A.  So, to avoid penalties/fines from the income tax department, it is better to file your tax return.

While, you may not find a guide to all of life’s situations outlining the benefits, as an informed tax payer, you can now start filing your tax return annually, even if your income is NIL or below the taxable limit, for not just avoiding penalties, but for the other myriad of benefits that could possibly impact your life in the future.

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