Do you file your income tax returns every year? If not, are you aware whether you should file your yearly return of income or not? There are many misconceptions due to which people do not bother to file return of income. Some people believe that their employers deduct the tax from their salary and deposit it with the Income Tax Department, whereas some people feel that their total income does not exceed the maximum exemption limit, and, some people are under the impression that their tax liability is zero.

Besides, there are hundreds of thousands of people who have no clue whatsoever about their tax liability and returns. Here is a brief guide that explains who should file tax returns and why they should file return of income.

Who should file return of income?

As per Section 139 (1) of Income Tax Act, 1961, any person shall furnish return of income on or before due date if the total income in a year exceeds the maximum amount, which is not chargeable to tax. Section 139 further clarifies that when the total income of any person exceeds the maximum exempted amount before applying any deductions under various sections, the person is liable to file income tax return.

Let’s understand the realities for ordinary taxpayers. In the FY (financial year) 2009-2010, the maximum income not chargeable to tax – the exemption limit – is 160,000 for men, 190,000 for women and 240,000 for senior citizens (resident individuals of 65 years or above).

Say for instance, your total income is 160,000 before applying any deductions under various sections. In this case, you are not liable to file tax returns. Now, say for instance, your total income is 160,001 but you want to claim a deduction of 10,000 under section 80C for saving in PPF. In this particular case, even though the total income works out to 150,001 (less than 160,000), you are liable to file return of income.

In addition to the above condition, Section 139 also specifies few other conditions under which any person shall have to furnish return of income even if the total income does not exceed the maximum exemption limit. The applicable conditions are:

Person has incurred an expenditure of Rs. 50,000 or more towards consumption of electricity
Person is in occupation of an immovable property, whether by way of ownership, tenancy or otherwise, exceeding a specified floor area. The specified floor areas vary with the urban areas, the details of which are published by Income Tax Department. For example, for Mumbai and Delhi, the specified floor area is 600 square feet for residential property and 100 square feet for commercial property. However, senior citizens who are not engaged in any business or profession are exempt from this condition.
Person is owner or lessee of a motor vehicle other than a two-wheeler
Person has incurred expenditure on foreign travel either for self or any other person
Person is the holder of any credit card, not being an add-on card, issued by any bank or institution
Person is member of a club where the entrance fee is Rs.25,000 or more

Why should you file income tax returns?

If any of the above conditions apply to you, you should file your return of income on or before due date otherwise you may be liable for penalties and prosecution under Income Tax Act. Besides fulfilling the requirements of Tax department, there are many indirect benefits of filing returns of income. If you are planning to visit abroad, you need a visa, where you might have to submit tax returns of past three years. When you approach any financial institutions for any loans, you need to submit copies of tax returns of the past 2-3 years. At many places, including passport offices, income tax returns are accepted as valid proof of residence.

In Nutshell:

Filing Income Tax Return on or before due date helps you in many ways in the long term. Nowadays, filing return of income has become relatively much easier especially due to E-Filing or online income tax return. Therefore, it is advisable to file your returns without any delays. If you are not sure how to file online return, you can file it through several E-Filing intermediaries, which charge about Rs.250 – Rs.400 per return.