Income tax return in India – when to file?

Income tax return in India – when to file?

In this article we will discuss various situations where an individual will be required to file his return of income in India under the Income tax Act (‘the Act’). This article intends to cover scenarios applicable to both resident as well as non-resident individuals having incomes other than incomes from business or profession.

Situations where filing of return is mandatory

  1. An individual is required to file his return of income if his total income is more than the basic exemption limit. Where total income exceeds the basic exemption limit, income tax needs to be paid as per the slabs prescribed every year in the Finance Act.

 For F.Y.s 2019-20 and 2020-21, this limit is Rs. 250,000 (for residents as well as non-residents). In case of senior citizens with the age of 60 years and above, this limit is Rs. 300,000. For super senior citizens who are 80 years or more, this limit is Rs. 500,000.

  1. In certain cases, your income may not be more than the above mentioned statutory limit. Even in such cases if you have undertaken certain transactions, you will be required to file your return. These transactions are:
    • In case of sale of residential house, one can claim exemption of capital gains under section 54 of the Act if there is a re-investment in new house. Similar exemptions from capital gains also exist under section 54F and 54EC in case of re-investment in new house or bonds respectively. As per amendment brought by Finance Act, 2019, if the income without giving effect to sections 54 / 54F or 54EC is higher than the above mentioned threshold, filing return of income is mandatory.
    • For non-residents, all long term capital gains and certain short term capital gains (on sale of listed equity shares / units of equity oriented mutual funds) are taxed at special rates and without giving benefit of basic exemption. In such cases, if there is any tax payable by the non-resident, he will be required to file return of income.
    • Where one has incurred any loss during the year and wishes to carry it forward to the next year, it can be done only if the return of income is filed on time
  1. Residents and ordinarily residents need to file return of income in case they hold any assets outside India even if their total income is below the basic exemption limit. Thus, NRIs who have moved back to India for good, but still hold foreign assets will be required to file return of income disclosing their foreign assets even when their income is below the basic exemption limit.

 

  1. Further, vide Finance Act, 2019, any person (irrespective of his residential status) who has undertaken any of the following transactions during the financial year needs to file return of income:
    • Deposited an aggregate of the amounts exceeding one crore rupees in one or more current accounts maintained with any bank
    • Incurred total expenditure exceeding two lakh rupees for himself or any other person for travel to foreign country
    • Incurred a total expenditure of one lakh rupees towards consumption of electricity

 

Situations where filing of return is recommendatory:

  1. The most common reason where filing of return is recommended is to claim refund of tax deducted at source.

In case of residents this happens commonly where they have missed submitting their Form 15G /15H to the bank and the bank starts deducting tax on interest. Though the income may be below the threshold, the individual will have to file his return to claim refund.

In case of non-resident Indians, such situation commonly arises when the bank deducts tax at highest rates on their NRO bank account while actual tax payable may be much less either due to lower income in India or due to benefits available under relevant double taxation avoidance agreement.

 

  1. It is advisable to file return of income as a good practice specially in case of those non-resident Indians who plan to come back to India for good. It becomes a documentary evidence that you were non-resident in India for tax purposes during that particular financial year and saves you from the hassle of going through your passport later to establish your physical stay in India and foreign country.

 

Also, many countries ask for a Tax Residency Certificate from tax residents of other countries for availing the beneficial provisions of treaty. Where one wants to obtain tax residency certificate in India, the fact that returns were filed in earlier years mentioning the residential status makes the tax officers work much easier. This, in turn, helps the assessee in getting the certificate easily and in less time.

FAQs:

  1. I am an NRI. My income for F.Y. 2019-20 includes NRO bank interest of Rs. 150,000 and interest from NRE account – Rs. 300,000. I do not have any other income in India. Do I need to file return of income?

Interest on NRE bank account is exempt and hence not to be considered while calculating the total income. Interest on NRO account is Rs. 150,000 which is below the basic exemption limit. So it is not mandatory to file return of income. Also, there is no tax payable by you for F.Y. 2019-20.

However, your bank would have deducted TDS on the NRO bank account interest and so you will have to file return of income to claim refund of TDS so deducted.

 

  1. My father sold off a residential flat for Rs. 3 crore in F.Y. 2019-20. There is a capital gain of around Rs. 1 crore. During the same year, he also purchased a residential flat of Rs. 3.5 crore. He is 70 years and is living a retired life now. He has interest income of Rs. 250,000 during the F.Y. 2019-20 on bank deposits. Capital gain will not be taxable as per provisions of section 54 since there is a re-investment into new house. The basic exemption limit for senior citizens is Rs.300,000. As such there is only interest income to be considered which is well below the basic exemption. Is he still required to file return of income?

Since your father has re-invested in a residential house, he will be entitled to the benefits of section 54 and his entire capital gain will be exempt. Also interest income is below the maximum amount not chargeable to tax (Rs. 300,000 for senior citizens). Hence, there will be no tax liability. Until FY 2018-19, an assessee was not required to file return of income in such cases since capital gains were entirely exempt and interest income is well below the basic exemption limit (i.e Rs. 300,000 in case of senior citizens).

As per the amendment brought in by Finance Act, 2019, if the total income without giving effect to provisions of section 54 (and other sections which are not relevant for this query) exceeds the basic exemption limit, one will be required to file return of income. In the present query, the capital gains and interest income together are much higher compared to the basic exemption limit. Considering this, your father will be required to file return of income even when there is no tax payable.

  1. A and his wife are both Indian citizens staying in USA for quite some time. They decided to shift back to India in F.Y. 2017-18. However, they don’t want to liquidate all their USA assets right now.

 Let’s assume that they were resident but not ordinarily resident for FY 2017-18 and FY 2018-19 and resident and ordinarily resident for FY 2019-20 satisfying the conditions mentioned in Income tax Act.

 Now, for FY 2019-20, Mrs. A has bank interest of Rs. 50,000. She owns certain foreign shares in USA. The dividend from those shares, converted to rupees is around Rs. 150,000. Mrs. A feels that even after considering her foreign income, her total income is Rs. 200,000 only. Hence, she is not required to file any income tax return in India. Is she correct?

Mrs. A needs to file her income tax return in India mainly because of the reason that she holds foreign assets even when the income is below the basic exemption limit.

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