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What is NIL Return and When can you file it?

Currently, people earning less than ₹2.5 lakhs are exempted from income tax. Furthermore, if someone earns in the range of ₹2.5 lakhs to ₹5 lakhs annually, their effective income tax rate becomes zero for the standard rebate, but they still can file an income tax nil return.

According to Indian income tax* laws, anyone earning below ₹2.5 lakhs need not pay any income tax and, thereby, is not required to file an income tax return (ITR). Under the old tax regime, a person comes under the purview of income tax for an annual income of ₹2.5 lakhs to ₹5 lakhs. Despite their tax eligibility, they do not have any effective income tax liability for standard deduction u/s 87A. 
 

However, did you know that a person who does not have any tax liability can still file a return? It is called nil income tax return filing. But why do people file nil returns? 
 

There are some advantages to filing nil ITR return. Read this blog to learn more about it.

What is Nil Return?

NIL Return filing is a way of communicating to the income tax department that the taxpayer does not fall under the purview of income tax. He or she may fall under the ₹2.5 lakhs annual income bracket that exempts them from taxes. Also, if a taxpayer has availed of a rebate under sections like 87A or 80C to reduce his or her tax liability to zero, they can file for a nil tax return.
 

This type of filing is termed “NIL Return”. Although it is not mandatory, people still do it because of its advantages.

 

When Should I File a Nil Income Tax Return?

You can file nil income tax return to show that you are earning. The tax return document doubles as income-proof. 
 

  • You can file a nil return when you have just started earning, and your total income is below the taxable limit. You can maintain a record of your earnings despite the zero tax liability. 

  • You can file a nil return when you have been filing your income tax returns for previous years, but for the present assessment year, your income dropped ‘below taxable limit’. This helps in maintaining your tax record and can deter any scrutiny from the income tax authorities.

What is the Benefit of Nil Return Filing?

These are some great benefits of filing a Nil Return:
 

  • The income tax documents serve as proof of earnings.

  • An income proof can assist you at the time of applying for a passport or a visa.

  • If you are applying for a loan, the bank may ask for ITR for multiple years. Having a nil return filing can help you in this regard.

  • If your bank deducted TDS on interest on deposits, you can claim a tax refund by filing a nil ITR.

  • Many people who work as freelancers or consultants often get a TDS deduction on their payments despite not falling under any tax bracket. Filing a nil ITR, in this regard, will get them the tax refund and save them a lot of money. 

  • If you are investing in the stock market but have an annual income of less than ₹2.5 lakhs, you can carry forward your losses in the market to set off capital gain tax in the following year. 

  • If you own any foreign asset, filing an ITR becomes mandatory for you, despite your income bracket.

How to File a Nil Return?

Filing a nil return is similar to filing a tax return, but keep your Aadhar, PAN, salary information, details of TDS, bank account details, and form 16 within the accessible reach. Follow these steps for nil return filing, 
 

  • Step 1: Visit the income tax department’s ITR filing site/page.

  • Step 2: Register yourself on the income tax portal. If you already have an account, log into it using your registered user ID (PAN number) and password. 

  • Step 3: Enter your password.

    Once you have successfully logged in to your account, follow these steps: 

  • Step 4: Select the applicable e-filing option (ITR1/ITR2/ITR3).

  • Step 5: If you have a Form 16 from your employer, your income data and investment details will already be filled.

  • Step 6: If there has been a TDS deduction, it will be reflected on your ITR form. You may also need to validate the 26AS form or Annual Information Statement.

  • Step 7: Since you are filing a nil return, your income tax liability will be automatically calculated, and it will show no due or ZERO.

  • Step 8: Submit the return

  • Step 9: E-Verify the ITR-V copy or send a signed one to the income tax department centralised processing centre by post.

Is There any Nil Return Late Fee?

We have discussed that the nil return filing process is similar to the ITR filing process. The last date of submission also remains the same. You must file your nil return by the 31st July of every year. Failing to file your return within the due date, you will be charged ₹1,000 nil return late fee. 
 

If your income is below the taxable income range of ₹5,00,000, the late fee for nil return is capped at ₹1,000.

Conclusion

Many people do not file ITR if they do not have any tax liability. But as this blog discussed, it can offer great advantages for filing ITR for zero tax liability as well. An ITR acts as an income proof and can be very handy in many situations. Nil tax filing documents can help you apply for a passport, visa, or loan.
 

Learn about Section 80C of the Income Tax Act to under tax payments and benefits in India.

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Tata AIA Life Insurance

A joint venture between Tata Sons Pvt. Ltd. and AIA Group Ltd. (AIA),  Tata AIA Life Insurance  is one of the leading life insurance providers in India. We post everything you need to know about life insurance, tax savings and a variety of lateral topics such as savings and investments in this space. You can access and read a host of different blogs, articles and pages at the Tata AIA Life Insurance Knowledge Center or get in touch with us with any queries or questions!

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Frequently Asked Questions

Who can file a Nil Return?

Anyone who does not earn a taxable income can file a nil return. Also, people who earn a taxable income from ₹2.5 lakhs to ₹5 lakhs per annum but whose total tax liability is zero after standard rebate can file nil IT returns.

Can I file a Nil Return only once?

If you file a nil return, you tell the government that you are earning. If you do not file an ITR in the following year, it might draw some scrutiny from the income tax department. So, it is always recommended to file an ITR every year without fail.

Is nil return mandatory for TDS?

According to the income tax rules, there is no mandate to file a nil TDS return.

Disclaimer

  • Insurance cover is available under the product.

  • The products are underwritten by Tata AIA Life Insurance Company Ltd.

  • The plans are not a guaranteed issuance plan, and it will be subject to Company’s underwriting and acceptance.

  • For more details on risk factors, terms and conditions please read sales brochure carefully before concluding a sale.

  • This blog is for information and illustrative purposes only and does not purport to any financial or investment services and do not offer or form part of any offer or recommendation. The information is not and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.

  • Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document issued by the insurance company.

  • Every effort is made to ensure that all information contained in this blog is accurate at the date of publication, however, the Tata AIA Life shall not have any liability for any damages of any kind (including but not limited to errors and omissions) whatsoever relating to this material.

  •  Tax: *Income Tax benefits would be available as per the prevailing income tax laws, subject to fulfilment of conditions stipulated therein. Income Tax laws are subject to change from time to time. Tata AIA Life Insurance Company Ltd. does not assume responsibility on tax implications mentioned anywhere in this document. Please consult your own tax consultant to know the tax benefits available to you.