Nil ITR: What it is and who should file it this tax season

Tax season is here, and it may seem daunting, however for many individuals there’s a lesser-known option: Nil Income Tax Return (Nil ITR).

Filing an ITR is mandatory if your total income exceeds the basic exemption limit. When your income falls below this threshold, certain types of income such as capital gains or profits from foreign assets may demand filing an ITR.

Under the old tax regime, for individuals under 60 years the basic exemption limit is ₹2.5 lakh, for senior citizens aged between 60 to 80 years it is ₹3 lakh, and for individuals above 80 years the exemptions are ₹5 lakh.

However, under the new tax regime, the basic exemption limit is set at ₹3 lakh for individuals, Hindu Undivided Families (HUFS), and other individuals excluding firms and companies.

What does Nil ITR mean?

A Nil ITR is a return filed specifically to declare to the Income Tax Department that no taxes have been paid in the respective fiscal year. It can be filed only when the income is below taxable limit after claiming deductions and exemptions.

Filing an ITR, even when you have no tax liability, offers several benefits such as the opportunity to claim a tax refund, support visa applications, and carryover of capital losses.

What are the advantages of filing Nil ITR?

There are several benefits associated with filing a Nil ITR, few of these benefits are discussed below:

Easier loan approvals: ITR acts as authenticated income proof, making it easier for processing loan applications from the banks and financial institutions. Therefore, this condition can be satisfied by Nil ITR.

Encourage visa processing: While applying for visas in many countries, proof of income serves as an important document. Passport applications also accept ITR as valid proof of address. In this situation, Nil ITR can serve as a valid document.

Claim tax refunds: It is possible that TDS has been deducted from certain earnings, such as bank interest, even when you do not have any taxable income. By filing a Nil ITR, you can get your excess TDS refunded.

Carryover of capital losses: You can carryover any capital losses incurred during a particular fiscal year by filing a Nil ITR. And these losses can be adjusted against future capital gains, thereby reducing the tax liabilities in later years.

If your total income exceeds the basic exemption threshold, then it is mandatory to file an ITR. However, even when your income is below the exemption limit, there are various types of income such as earnings from foreign assets and capital assets that require filing of an ITR. Hence, the nature of income has a considerable impact on filing an ITR, regardless of whether your total income is below the basic exemption limit.