Excerpt:

Curious as to whether you should submit your Income Tax Return (ITR) when your income level is below the taxable threshold? Learn why it could be a wise decision to submit your ITR and the multiple advantages it has, including even for low-income individuals.

Introduction:

Filing an Income Tax Return (ITR) in India has been a task typically relegated to only those who earn more than the tax threshold. But even if your income is below the tax liability threshold, there are a few strong arguments for why it might be advantageous to file your ITR voluntarily. In this article, we will discuss the benefits of filing an ITR when your income is low, such as how it can be used as proof of income, give you access to loans or visas, and keep you in good books financially.

So, whether you're freelancing, self-employed, or have a part-time job that hardly makes much money, you may wish to file your ITR. Let's talk about why filing makes sense, even if you don't really have to!

1. What Is an Income Tax Return (ITR)?

Before we dive into the advantages, let's explain what an ITR is. An Income Tax Return is a document filed with the Income Tax Department in India to declare your income, deductions, and the tax you pay, if any. It's how the government keeps tabs on people's and companies' financial transactions for taxation purposes.

Even if you do not have to pay taxes because of low income, an ITR helps you maintain a financial record with the government.

2. Why Should You Consider Filing Your ITR Voluntarily?

Many people don’t realize that voluntary tax filing can have a range of benefits, even if you're not legally obligated to do so. Let’s look at some of these advantages:

3. Benefit #1: Proof of Income for Future Financial Transactions

Submitting your ITR serves as a formal proof of income. This is especially necessary when you're applying for loans, credit cards, or even a visa. Whether it's a personal loan, home loan, or business loan, most institutions need your ITR details for the past few years to analyze your financial health.

Essentially, your filing of ITR becomes your proof of income, demonstrating your financial prudence and capability to manage finances, even though your income is low.

Example:

If you’re looking to rent an apartment, some landlords may ask for proof of income. An ITR can be a reliable document that shows your income level, even if it’s low, without requiring you to submit informal pay stubs or other documents.

4. Benefit #2: Easier Access to Loans and Credit

As mentioned, banks and financial institutions often require a history of filed ITRs before approving loans or credit card applications. While this requirement is more stringent for those with higher incomes, it’s also applicable to individuals with low income who may want to take out a loan for education, home improvement, or other personal needs.

Having filed ITRs can speed up the loan approval process and help you access better rates or terms. It can also serve as a safeguard, making sure you’re not caught off guard in the future when your financial situation improves, and you need credit.

Example:

A student loan might require you to provide proof of income or your parents' income. Having filed an ITR helps in presenting a credible financial history.

5. Benefit #3: Simplifying Future Tax Filing

If you file your ITR now, you’re setting yourself up for smoother future tax filings. By registering your details with the government, you can keep your records up to date. This is particularly useful for salaried individuals who may experience an increase in income over the years or those who have sporadic income streams.

Having filed an ITR once makes it easier to file in subsequent years because your financial history will already be available to the authorities. This can save you time and hassle in the long run.

6. Benefit #4: Visa Applications

One of the popular but underrated advantages of filing an ITR is the benefit it provides you in visa applications. If you are seeking a tourist visa, student visa, or work visa, most countries, including the US, UK, and Canada, request your ITR record.

You can prove that you are financially stable when you submit your ITR, which can be a good point in the approval of your visa. It indicates that you are financially responsible and have a history of being tax compliant.

Example:

If you're applying for a student visa to study abroad, providing your filed ITR can support your application by showing that you’re financially stable and can manage your expenses while studying.

7. Benefit #5: Refund on TDS (Tax Deducted at Source)

In many cases, tax is deducted at source (TDS) from your income. If your income is below the taxable limit, you might not owe any taxes, but the TDS deducted may still be refundable. To claim this refund, you need to file your ITR.

For instance, if you work in a company whose employer withholds tax but you are under the taxable income limit, you can be entitled to receive your TDS refund when you submit your tax return


8. Benefit #6: Building a Solid Financial Record

By regularly filing an ITR, you are building a solid financial history. This shows that you have enhanced financial credibility and can become a plus in both personal and professional activities. Whichever loan, credit, or reference is required for any of the related financial transactions, a history of filed returns enhances your financial reliability.

9. When Should You File an ITR, Even If Your Income Is Below the Taxable Limit?

Here’s a quick guide to know when you should consider filing your ITR, even if your income is below the taxable limit:

10. Conclusion: Is It Worth Filing Your ITR Even If Your Income Is Below the Taxable Limit?

Thus, though many believe they don't have to file their Income Tax Return if they fall below the taxable limit, there are a host of advantages to filing one. Acting as evidence of income, obtaining visa or loan approvals among others are simpler with a filed ITR - smart move toward financial health even for small sums.

By submitting your ITR, you're not just being a good tax citizen, but you're also positioning yourself for a better financial future. So the next time you're thinking about whether or not you should do your taxes, keep in mind that the advantages far exceed the small effort.

📞 Need Help with Direct and Indirect Tax?

For expert guidance on Direct Tax and Indirect Tax, or to gain deeper insights into these topics, contact CA Pratik S. Kothari today!