At present, income up to Rs 2.5 lakhs is exempted from any taxation, while the amount from 2.5 to 5 lakhs has an effective income tax rate is zero. Therefore, no tax must be paid up to the amount of 5 lakhs, but in both the cases nil return can be filed.

What Is a Nil Return?

A nil return is an income tax return filed specifically to declare to the Income Tax department that no amount has been paid as taxes in the respective financial year. This happens only when the income is below the exemption limit or when a rebate reduces the tax liability to zero.

Filing a nil return is no different from filing a regular income tax return. However, there is a constant dilemma faced by many salaried employees who fall in this category as they find this exercise of filing a nil return as superfluous.

When Can You File a Nil Return?

According to the Indian Income Tax rules, a Nil Return has to be filed when the income is –
  1. Below the tax exempted slab of Rs 2.5 lakhs
  2. Between the zero tax limits of Rs 2.5 lakhs to Rs 5 lakhs
Filing a nil return, even though seemingly unnecessary, has many advantages attached to it. Let us have a look at some essential instances when a nil return comes in handy.

  • Serves as Your Proof of Income:
  • Many government and private institutions require your proof of income for processing your application. In most of those cases, it is the Income Tax Return (ITR) that gets precedence over your salary slip. Therefore, filing an income tax even with a zero tax liability keeps you record authentic and credible. Moreover, a habit of filing a return (including a nil return) right from the start of your career effectively creates a chronological proof of income.

  • To Claim a Refund:
  • Though a person falls under zero tax rate, they have to file for ITR to claim for a refund. Moreover, there are also some cases where TDS is deducted, where one has been taxed incorrectly. It then becomes necessary to file a nil return so that you can get tax refund coupled with an interest of 0.5% on the extra sum you may have paid. Another crucial point to remember here is that the ITR must be filed within the specified date as stated by the IT Department, post which you might have to do without the interest.

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DISCLAIMER

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.



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