Many of you are searching for the definition of a Nil Income Tax Return online. We are here to answer your query. Keeping in mind that over 22 lakh taxpayers enrolled in the SMS system will benefit from the 'Nil' filing system for monthly GST returns, which was launched on June 8, 2020.
We believe many of you fall below the taxable income and therefore did not pay taxes during the year. This you need to file and declare to the Income Tax Department. Yes, Nil income tax return filing is compulsory under the Income Tax Act, 1961 for taxpayers. By filing the nil return, the taxpayer would declare to the Income Tax department that they had no income/activities during the assessment year. In this article, we will be discussing who should file the Nil return. And also on how they should register under the Income Tax Act.
What is a Nil Return?
If your income is below the ₹2.5 lakh threshold, you are not liable to pay any income tax, resulting in a zero tax liability. Although filing an income tax return is not mandatory in this case, you have the option to do so. This type of return, known as a ‘NIL Return,’ informs the income tax department that you have no taxable income for that financial year. Despite not being required, filing a NIL return offers several benefits.
Benefits of Filing Nil Returns
- An ITR may be necessary when applying for a visa
- Passport applications accept a Nil ITR as valid proof of address
- ITR is required for loan applications as supporting evidence to determine eligibility
- Banks may deduct TDS on interest from deposits; individuals can claim a TDS refund by filing a nil ITR
- Some organisations deduct TDS for consultants or freelancers; filing a nil ITR allows them to claim a TDS refund if they’re below the tax bracket
- Filing ITR is mandatory for individuals who own foreign assets, even if their income is below the threshold
- It’s possible to carry forward stock market losses by filing a nil ITR when income is below the threshold
- Mandatory filing of ITR is required in the following cases:
- Deposits exceeding one crore rupees in one or more current accounts with a bank or cooperative bank
- Expenditure exceeding ₹2 lakh on travel to a foreign country for oneself or another person
- Expenditure exceeding ₹1 lakh on electricity consumption.
Company
All the companies which are registered in India should file the income tax return every year in Form ITR-6, regardless of the business activity or profits or revenue. Hence, Nil return filing is compulsory for all the inactive companies and dormant companies. If a company is being wound-up, it should still file the income tax. And also if the company’s annual returns are being struck-off from the MCA (Ministry of Corporate Affairs) Register of Companies.
Who Is Required to File Income Tax Return?
If you are less than 60 years of age and your total annual gross income exceeds ₹ 2,50,000, then you will have to file an income tax return.
Proprietorship
Proprietorship firms should file the income tax return in Form ITR-3 or ITR- 4. Form ITR- 4 can be filed by the taxpayers who have chosen for the presumptive taxation scheme. Even if there is no business activity or profit, while in a proprietorship firm where ITR-3 or ITR-4 Form has been filed previously, Nil return should be filed even if there is no business activity or profits. For most of the proprietorship firms, also if there is no activity or revenue, there will always be certain expenditure incurred which will be carried forward as a loss. So, all the proprietorship firm should file the Nil return even if there is no activity.
Limited Liability Partnership
All the LLPs which are registered in India should file the income tax return every year in the Form ITR-5, regardless of the business turnover or activity or profits. Even after incorporating, if the LLP has not started any activity, it should still file Nil return and MCA annual return through Form 8 and Form 11.
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Individuals
According to the Income Tax Act, an individual having an income of ₹2.5 lakhs or more should file the income tax return in ITR-1 or ITR-2 form every year. The income tax return should be submitted by all the individuals on or before 31st July every year. If your income does not exceed ₹2.5 lakhs/per, then you aren’t required to file the Nil return. If you have registered your income tax return in your previous year, then you have to submit the Nil return even if the taxable income is not more than ₹2.5 lakhs/year
Penalty for Not Filing the Nil Return
If a taxpayer fails to file their income tax return on or before 31st July, a penalty of ₹5000 will be applicable from 1st August. If the income tax return is not filed before 31st December of the same assessment year, the income tax penalty will be increased to ₹10,000.
Due Date to File Nil Income Tax Return
Individuals are required to file a nil return by 31st July of the Assessment Year, which is the same deadline as for regular returns. Filing a nil ITR after this date will be treated as a belated return, though no late filing fees are applicable in such cases.
Why Should One File the Nil Tax Return
You can file a Nil tax return if you want to keep a record of your earning falls whether it falls below the taxable limit or not. There are many instances where income tax serves as proof. For example, when one is applying for their visa or while getting their passport made. When one is filing income tax returns for so many years and suddenly fell into the ‘below taxable limit’ this year. By filing the Nil tax return, they can continue maintaining the record. Additionally, they can prevent scrutiny from the Income Tax Department.
It will help claim the refund also. For instance, one’s total income without taking the deductions into account could be above the taxable limit. But with the deductions, it might be below the minimum exemption limit, that is ₹2,50,000. If one has paid more taxes than required, one should file the income tax return to claim a refund. Filing income tax returns is compulsory for those whose total income exceeds ₹2,50,000. It is not necessary to file the income tax return if the total income doesn’t exceed ₹2,50,000.
Filing Nil Income Tax Return Online
Filing the nil return is the same as filing a regular income tax return. Enter the income details and deductions. Income tax is calculated and will be shown that there is no tax due. Submit the immediate return to the concerned Income Tax Department.
How to File a Nil Income Tax Return
Preparation: Gather Your Documents
- PAN (Permanent Account Number)
- Bank Account Details
- Salary Details (if applicable)
- Aadhaar Number
- Form 16 (if TDS deducted by employer)
- Investment Details (for deductions under sections like 80C, if applicable)
Visit the Official Income Tax e-filing Website
- Go to the Income Tax Department’s official e-filing website.
- Log in using your registered user ID (typically your PAN) and password. If not registered, complete the registration process.
Navigate to the e-Filing Section
- After logging in, click on ‘e-File’ and select ‘Income Tax Return’.
Fill in Income and Deduction Details
- Choose the assessment year for filing.
- Select the appropriate ITR form (e.g., ITR-1 for salaried individuals).
- Enter your income details and deductions claimed. Ensure your taxable income after deductions is below the basic exemption limit for a nil return.
Compute Income Tax
- The system will automatically compute your tax liability.
- Verify that it indicates zero tax due, confirming no tax liability.
Submit the Return
- Review all details entered and submit your ITR.
- Choose to e-verify your return using available methods (Aadhaar OTP, Net Banking, Bank Account, Demat Account).
E-Verify Your Return
- Complete the e-filing process by e-verifying your return.
- Alternatively, download the ITR-V (acknowledgement) form, sign it, and send it to the CPC in Bengaluru by post within 120 days of e-filing.
Conclusion
Submitting a Nil Income Tax Return (ITR) is essential even if your income falls below the taxable threshold. It acts as conclusive evidence of income for financial transactions, enables refunds of excess TDS, and allows for the carry forward of losses to offset future gains. The procedure closely resembles filing a regular return and must be completed by the deadline of 31st July of the Assessment Year. This practice enhances your financial credibility and prepares you for diverse situations, such as loan applications and visa procedures. Vakilsearch offers comprehensive assistance for filing your Nil Income Tax Return (ITR) efficiently and accurately. Our experts guide you through the entire process, ensuring compliance with all regulatory requirements and deadlines.
Frequently Asked Questions
What is the meaning of nil income tax return?
A nil income tax return refers to filing an Income Tax Return (ITR) when an individual's taxable income is below the threshold requiring payment of income tax. It declares zero tax liability but is essential for claiming TDS refunds, carrying forward losses, and providing proof of income for financial transactions.
What is a Nil Return and when should you file one?
A nil return is filed when an individual's taxable income does not exceed the basic exemption limit, resulting in zero tax liability. It should be filed before the due date specified by the Income Tax Department, typically by 31 July of the Assessment Year, to maintain compliance and avail of associated benefits.
Who can file nil returns?
Individuals whose total income falls below the taxable threshold prescribed by the Income Tax Act can file nil returns. This includes salaried individuals, freelancers, consultants, and others whose income, after deductions, does not surpass the exemption limit. Filing ensures compliance with tax laws and facilitates financial transactions.
How do I pay my nil tax return?
: To file a nil tax return, log in to the Income Tax Department's e-filing portal, select the appropriate ITR form (typically ITR-1 for salaried individuals), enter personal details, income, deductions, and confirm zero tax liability. Submit the return electronically and e-verify using available methods like Aadhaar OTP or net banking for a seamless process.
Is there any penalty for nil return?
There is no penalty for filing a nil return within the stipulated deadline. However, failing to file by the due date may classify the return as belated, though no late filing fees apply for nil returns. Timely filing ensures compliance and facilitates benefits like TDS refunds and loss carry-forwards.
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