What is Nil ITR Filing and How to File It?

If your gross total income falls below the basic exemption limit, filing an income tax return (ITR) isn't mandatory. The exemption limit varies based on the chosen tax regime.

When an individual taxpayer's income falls below the basic exemption limit for a financial year, they are not liable to pay any tax, as per Section 139(1) of the Income-tax Act, 1961. Therefore, they are not required to file an income tax return, as they are exempted from taxation. However, if they still file a return despite having income below the basic exemption limit, it's termed a 'Nil Return'. Although filing nil returns isn't obligatory, it carries benefits.

The basic exemption limit varies based on the chosen tax regime:
●    Old Tax Regime:
●    Rs 2,50,000 for individuals below 60 years
●    Rs 3,00,000 for individuals aged 60 to 80 years
●    Rs 5,00,000 for individuals above 80 years
●    New Tax Regime: Rs 3,00,000 is the basic exemption limit.

However, even if not compulsory, filing ITR is advisable. Submitting a nil return indicates to the Income Tax Department that you had no taxable income in a specific financial year. This is beneficial because it allows you to carry forward any losses for future tax reductions.

Failure to file a nil return may result in the inability to carry forward losses. Moreover, certain taxpayers are required by law to file a nil return. Therefore, it's essential to fulfill this requirement to avoid any future complications.
 

What is a Nil Tax Return?

An ITR is deemed a Nil ITR when there's no tax liability for the taxpayer. This can occur if the income falls below the basic exemption limit or if the net total income remains under the threshold even after deductions and exemptions. Additionally, if the total tax liability becomes zero after claiming rebate under section 87A, the filed return is still considered a Nil ITR. This term indicates that no taxes are owed by the taxpayer for that particular year.

When should I file a Nil Return?

To utilize income tax returns as proof of income

If you're just starting out and your income falls below the taxable limit, but you still want to maintain a record, consider filing income tax returns. They can serve as proof of income in various situations, such as when applying for a visa or obtaining a passport.

Even if you've been filing income tax returns for several years and find yourself below the taxable limit this year, it's advisable to continue doing so. This not only helps maintain a record but also acts as a precautionary measure in case of scrutiny by the Income Tax Department.

To claim a refund

While your total income might exceed the taxable limit before deductions, the deductions themselves could be below the minimum exemption threshold. If you've paid more taxes than necessary through TDS, filing an income tax return is essential to claim a refund.
 

How do I fill up a Nil Return online?

Filing a Nil ITR follows the same process as filing a regular ITR and can be done online with these steps:

Ensure you have the necessary documents handy: PAN, bank account details, salary information, Aadhaar, Form 16, and investment details.
Log in to the official website of the Income Tax Department using your registered user ID and password.
Navigate to the e-filing section.    
Enter your income and deduction details.
The system will automatically compute your income tax, showing no tax liability if your income is nil. Submit your return to the Income Tax Department.    
Complete the e-filing process by either sending your ITR-V to CPC Bengaluru or e-verifying your ITR.
 

What are the benefits of filing a Nil ITR?

Filing a NIL return offers several advantages beyond just completing a task:

Visa Applications: Some countries may require income tax returns as part of the visa application process.
    
Proof of Address: Passport applications accept ITR or Assessment Order as valid proof of address.
    
Loan Eligibility: Loan applications often require ITR copies as evidence of financial stability and eligibility, ensuring readiness for unexpected financial needs.
    
Refund Claims: Banks may deduct TDS on interest from deposits. Filing ITR enables claiming refunds on excess deductions.
    
Freelancer Refunds: If TDS is deducted from freelance payments, filing ITR is essential to claim refunds if not in the tax bracket.
 

TDS Compliance: Section 206AB mandates higher TDS rates for non-filers, emphasizing the importance of filing returns.
    
Income Tracking: Filing ITR even with income below Rs.2.5 lakhs helps maintain chronological income records.
    
Foreign Asset Reporting: Mandatory ITR filing for individuals owning foreign assets, irrespective of income level.
    
Loss Carryforward: Regular ITR filing enables carrying forward losses incurred in the stock market for future offsetting.
 

Can I go without filing a Nil Return?

Filing income tax returns is a requirement for individuals whose total income surpasses the basic exemption limit. Nevertheless, you should file  your income tax return even if your total income is below this limit, as it enables you to access the benefits mentioned above.

Due date to file Nil Income tax Return

Individuals are required to file a nil return by the 31st of July of the Assessment Year. The deadline for filing a nil ITR is the same as for a regular return. However, if the nil return is filed after the due date, it will be considered a belated return. In the case of belated filing of nil returns, no late filing fees will be charged.

Conclusion

In conclusion, it's essential not to underestimate the value of filing ITR, even if you have no tax liability. As demonstrated in this blog, submitting an ITR with zero tax liability can offer numerous advantages. Beyond fulfilling tax obligations, it serves as a crucial proof of income, facilitating various financial transactions such as passport applications, visa requests, or loan applications. Therefore, regardless of tax liability, filing ITR ensures you have a reliable financial record readily available when needed.