What is a Nil Income Tax Return?
A Nil Income Tax Return (Nil ITR) is filed to show the income tax department that your income is below the taxable limit and, therefore, you did not pay any taxes during the financial year.
Is Filing a Nil ITR Mandatory?
Although individuals with an income below ₹2.5 lakhs don’t need to file an ITR, there are certain conditions under which you must file an ITR even if your income is below the taxable threshold:
- If you have deposited an amount or aggregate amounts exceeding ₹1 crore in one or more current accounts maintained by a banking company or a cooperative bank.
- If you have incurred expenditure exceeding ₹2 lakhs for travel to a foreign country for yourself or any other person.
- If you have incurred expenditure exceeding ₹1 lakh towards electricity consumption.
Benefits of Filing a Nil ITR
Even though it is not mandatory, there are several benefits to filing a Nil ITR:
- Visa and Passport Applications: The ITR form can be required while applying for your visa or passport. A filed ITR is evidence of financial stability in some countries or districts.
- Loan Applications: While applying for loans in banks and financial institutions, you may also require ITR. It serves as proof of income and allows people to evaluate your financial situation.
- TDS Refunds: Banks indeed deduct TDS (Tax Deducted at Source) on interest earned from deposits. If you satisfy the income criterion for being a non-taxable person, then file a Nil ITR form along with this proof of FDs and TDS credited to your account.
- Consultants and Freelancers: Organizations can deduct TDS from your payments if you are a consultant or freelancer. If your income exceeds the threshold limit, you can file a Nil ITR and return this TDS.
- Carrying Forward Losses: When you incur losses in the stock market, filing a Nil ITR helps to carry forward the same. These losses can then be set against future gains, reducing tax liability.
How to File a Nil ITR?
Filing a Nil ITR is straightforward:
Let’s go through an example to illustrate the process and benefits of filing a Nil Income Tax Return (Nil ITR):
Scenario:
Rahul’s Financial Year Income Details:
- Salary: ₹2,40,000
- Bank Interest: ₹5,000
- Total Income: ₹2,45,000
Step-by-Step Example:
1. Entering Income Details:
Rahul needs to enter his income details into the ITR form:
- Salary Income: ₹2,40,000
- Bank Interest Income: ₹5,000
- Total Income: ₹2,45,000
2. Computing Tax:
Since Rahul’s total income of ₹2,45,000 is below the taxable threshold of ₹2,50,000, his tax liability is zero. The computation will show that no tax is due.
3. Submitting the Return:
Rahul submits his Nil ITR through the income tax department’s online portal. He fills in the details and uploads the necessary documents.
4. Verification:
After submitting, Rahul needs to send the ITR-V (acknowledgement form) to the CPC in Bangalore. This can be done either physically by post or electronically through the e-verification process.
Benefits to Rahul and others who are Filing a Nil ITR
Even though it is not mandatory, there are several benefits to filing a Nil ITR:
- Visa and Passport Applications:
- When Rahul applies for a visa, the consulate may ask for proof of financial stability. His filed ITR serves as a credible document.
- While applying for a passport, the ITR can be used as proof of address.
- Loan Applications:
- The bank will require proof of his income if Rahul plans to apply for a loan. His filed ITR is supporting evidence, even if his income is below the taxable limit.
- TDS Refund:
- Suppose Rahul’s bank deducted TDS on his interest income. By filing a Nil return, Rahul can claim a refund of this TDS since his total income is below the taxable limit.
- Consulting/Freelancing Income:
- If Rahul also worked as a consultant and TDS was deducted from his payments, he can claim this by filing a Nil ITR.
- Carrying Forward Losses:
- Assume Rahul had some investments in the stock market and incurred losses. By filing a Nil ITR, he can carry forward these losses to offset against future gains, thereby reducing his future tax liability.
Conclusion:
Although Rahul’s income is below ₹2.5 lakhs and he has no tax liability, filing a Nil ITR provides him several advantages. It helps with financial credibility, supports loan applications, ensures TDS refunds, and aids in carrying forward stock market losses.
By following these steps, Rahul ensures he leverages the benefits of filing a Nil ITR, making his financial documentation robust and beneficial for future needs.
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