Bringing great cheer to taxpayers, Budget 2025 raised the threshold of income with zero income tax liability after rebate from its previous level of Rs 7 lakh to Rs 12 lakh without special rate incomes in the new tax regime. These changes, which will be applicable from the next financial year starting from April 1, 2025, mean that if your annual income is up to Rs 12 lakh, you will be eligible for a full income tax rebate under Section 87A and hence pay zero tax.Moreover, in this budget, FM Nirmala Sitharaman also hiked the basic income exemption limit from the previous Rs 3 lakh to Rs 4 lakh under the new tax regime. Starting next FY, those with an annual income of up to Rs 4 lakh will not be required to pay any taxes, nor will they be legally mandated to file an income tax return (ITR).
However, will those earning above Rs 4 lakh and up to Rs 12 lakh also not be required to file an ITR since they are also not required to pay taxes? We decode this for you.
Is it compulsory to file an ITR to be able to claim a rebate under Section 87A?
At present, for income earned during financial year 2024-25, those earning over Rs 3 lakh but less than Rs 7 lakh in the new tax regime and over Rs 2.5 lakh but less than Rs 5 lakh under the old tax regime need to file their ITRs to claim a rebate under Section 87A of the Income Tax Act.
In Budget 2025, FM Nirmala Sitharaman hiked the rebate amount from Rs 25,000 under the new, proposed regime to Rs 60,000. As per CA Dr. Suresh Surana, “The government provides relief to middle-class taxpayers by offering a rebate under Section 87A. This rebate allows individuals with income below the prescribed threshold to reduce their tax liability.”
However, this Rs 60,000 rebate under the new tax regime will only apply to taxpayers whose total annual income does not include special rate incomes such as long-term or short-term capital gains. Despite the hike in the 87 rebate, you will still need to claim this by filing an ITR. Says Abhishek Mundada, Partner, Dhruva Advisors, “Filing an ITR is compulsory if you want to claim the rebate available under Section 87A. Those earning more than Rs 4 lakh but under Rs 12 lakh will not automatically qualify for Section 87A rebate if they do not file their ITR starting next year.”
When taxpayers need to file ITR despite income below the basic exemption limit?
Mundada explains that certain situations necessitate filing an ITR even if the individual’s annual income is below Rs 3 lakh in the new tax regime, below Rs 2.5 lakh in the old regime, and Rs 4 lakh in the next tax regime, effective the next financial year. These situations, mentioned under Section 139 of the Income Tax Act, include:
- If the individual holds or is a beneficial owner of foreign assets
- Deposits over Rs 1 crore in his/her current or savings account within one FY
- Incur an expenditure of over Rs 2 lakh on foreign travel within one FY
- Consumes electricity of over Rs 1 lakh within one FY
- Gross Sales in business exceeds Rs 60 lakhs in a financial year
- Gross receipts in Profession (other than business as covered) exceeds Rs 10 lakhs in a financial year
- TDS/TCS is more than Rs 25,000. This limit stands at Rs 50,000 for senior citizens.
Adds CA Nainit Savla, “As per the IT Act, ITR is not required to be filed if the total income for the year is less than Rs 4 lakh. However, in certain cases illustrated under Section 139, ITR is required to be filed irrespective of the income of the assessee. The assessee is advised to check whether they fall under any of the cases given in Section 139.”
What is the penalty for not filing an ITR?
Mundada explains that if an individual who earns more than Rs 4 lakh but less than Rs 12 lakh does not file their ITR before the due date starting next financial year, they could receive a notice from the I–T Department for not paying their taxes.
“In response to this notice, the individual can claim the rebate available under Section 87A. However, there could be a penalty for non-filing of tax return suo-moto, i.e. on their own accord”, adds Mundada
However, CA Ashish Karundia points out that although assessing officers (AOs) had the authority to impose a penalty under Section 271F for failure to file tax returns on time, this penalty was rarely enforced.
“As a result, the legislature removed this penalty and introduced a system of late fees under Section 234F, effective from the Assessment Year 2018-19. This section now stipulates a late fee of Rs. 1,000 (where total income is up to Rs. 5 lakh) and Rs. 5,000 (where total income exceeds Rs. 5 lakh),” he adds.
In addition to the specified late fee, taxpayers who are required to file their Income Tax Return (ITR) under Section 139 but fail to do so within the due date will be charged interest at a rate of 1% for every month or part of the month on the outstanding amount (after accounting for taxes already paid).
This interest will accrue until the return is filed or the assessment is completed, as the case may be. The interest will begin from the day after the due date.
What are the benefits of filing an ITR?
While those falling below the basic income exemption limit might not voluntarily file ITRs, since it is not legally required, there is merit in filing even a nil ITR. A nil ITR is filed if a taxpayer’s income falls below the taxable threshold.
Explains Mundada, “Filing ITRs, even if they are nil ITRs, serves as income and address proof. This can help taxpayers get loans from banks and NBFCs approved with relative ease. If you are looking to take a foreign trip, most consulates and embassies also demand your ITRs for processing your visa application. It is generally recommended that individuals file their ITRs on time.”
