Nil ITR: Should you file a return if income is below taxable limit? Absolutely, say experts

If your annual income is below the basic exemption limit, you may assume that filing an Income Tax Return (ITR) is optional. Technically, you’re right. But strategically? “Absolutely, yes,” says Kaukab Razvi, a tax-saving strategist. Filing a Nil ITR — where your tax liability is zero — isn’t just about compliance, it’s about laying the foundation for stronger financial credibility.

A Nil ITR is a tax return filed by individuals who don’t owe any income tax for the financial year, usually because their income falls below the threshold set by the Income Tax Department. While it may seem unnecessary, filing a Nil return has several long-term advantages — from accessing refunds and carrying forward losses to easing visa and loan processes.

"Not all responsibility comes with bills, some comes with benefits. Your ITR is one of them," Razvi adds.

What are the key benefits of filing a Nil ITR?

For starters, if Tax Deducted at Source (TDS) has been applied to your income, for example, on interest from fixed deposits or on freelance payments, you can claim a refund by filing your ITR. This is especially relevant for freelancers, students, and first-time earners who often fall below the taxable limit but still see TDS deductions.

Another major advantage is that a filed ITR acts as a valid income and address proof. This can be useful for visa applications, applying for government subsidies, or even securing a loan. Banks and financial institutions often rely on your ITR history when assessing your creditworthiness.

Additionally, filing a Nil ITR allows you to carry forward capital or business losses to future years, enabling you to offset them against gains later. Without an ITR on record, this benefit is forfeited.

Who should consider filing a Nil ITR?

You must file an ITR if you:

Own foreign assets or earn foreign income, regardless of your total income.

Have had TDS deducted and want to claim a refund.

Wish to carry forward losses from the stock market or business.

Have deposited more than Rs 1 crore in a current account, spent Rs 2 lakh or more on foreign travel, or incurred electricity expenses above Rs 1 lakh.

Even without a tax obligation, these situations require you to file returns to ensure compliance and avoid scrutiny.

Understanding exemption limits

Under the old tax regime, individuals below 60 are exempt up to Rs 2.5 lakh; those between 60 and 80 up to Rs 3 lakh; and those above 80 up to Rs 5 lakh.

The new regime offers a flat exemption limit of Rs 3 lakh across all ages. However, thanks to tax rebates — up to Rs 12,500 in the old regime and Rs 25,000 in the new — even those with incomes slightly above the threshold may not owe taxes. Yet, filing is still recommended for the benefits outlined above.

No penalty, but don’t delay

If you're filing a Nil ITR after the due date, it's treated as a belated return. Fortunately, unlike regular returns, there is no late filing fee for Nil returns. However, filing on time ensures faster refunds, smoother documentation, and no hiccups in financial planning.

In summary, filing a Nil ITR may not be mandatory, but it is a smart financial move that opens doors to multiple advantages. Think of it not as a tax burden, but as an investment in your financial credibility.