Why you must file ITR even if no tax is payable after rebate under Section 87A Many taxpayers wrongly assume that no tax payable means no need to file returns. But experts warn that ITR filing is still mandatory once income crosses the basic exemption limit — even if the rebate under Section 87A reduces liability to zero. For many taxpayers, the rebate under Section 87A has become a source of confusion. A common misconception is that if no tax is payable after claiming this rebate, filing an income tax return (ITR) is unnecessary. Experts caution that this belief is incorrect and failing to file an ITR despite having taxable income can attract penalties and other complications. “Many people believe that if their income is below ₹12 lakh, they don’t have to file taxes at all. That is not correct,” says CA Vijaykumar Puri, Partner at VPRP & Co LLP, Chartered Accountants. “For FY 2024-25, the rebate under Section 87A is available only up to ₹7 lakh in the new regime.
From FY 2025-26, this threshold will increase to ₹12 lakh. But whether the limit is ₹7 lakh or ₹12 lakh, the important point is this: you may not have to pay tax after claiming the rebate, but you still have to file your ITR if your income crosses the basic exemption limit, puri notes
What does the rule say The law is clear, if your gross total income before deductions exceeds ₹3 lakh under the new tax regime or ₹2.5 lakh under the old tax regime, filing an ITR is compulsory. It doesn’t matter whether your final tax liability is zero after deductions or rebate under 87A. Filing is required once income crosses the threshold, “For instance, even if someone has a salary of ₹11.5 lakh but doesn’t file their ITR, there will be consequences. While they may not have to pay tax or interest, they will still face late filing fees and penalties.” explains CA Ashish Karundia, founder of Ashish Karundia & Co., Chartered Accountants.
Consequences of not filing Failure to file an ITR can invite penalties, even when no tax is due. “If someone doesn’t file the ITR believing this misconception, there are consequences. First, there are late filing fees under Section 234F — up to ₹5,000 if the return is filed after the due date,”
Puri explains. Interest under Section 234A applies only when tax is due, but the late fee is unavoidable if the deadline is missed.
What if you miss the December deadline? The last date to file a belated return is December 31 of the assessment year. After that, you cannot file a regular or belated return. The only option is to use the “updated return” (ITR-U) facility. Here’s the difference: ● Late fee under Section 234F (up to ₹5,000) applies to belated returns filed after July 31 but before December 31. ● For updated returns (ITR-U), you must now pay not only the additional tax due but also extra interest and the Section 234F late fee. In addition, there is a penalty of 25% of the additional tax if you file within 12 months, or 50% if filed within 24 months. ● As per the recent amendment in the Union Budget, ITR-U can now be filed for up to 4 years from the end of the relevant assessment year. Missed the deadline? If you miss the deadline, you can file a belated return until December 31, though with penalties. Beyond that, the only option is an updated return (ITR-U). “An updated return allows taxpayers to file or correct their return even after deadlines are over. But it comes at a cost — an additional 25% of the tax amount, if filed within 12 months, or 50% if within 24 months,” explains Puri.
For example, suppose you earned ₹10 lakhs in FY 2022-23 but filed your return showing only ₹8 lakhs. Later, in August 2024, you realize the mistake. You can file an updated return declaring the correct ₹10 lakhs income. Along with the tax on the extra ₹2 lakhs, you will also have to pay the additional applicable interest on it, depending on how late you file. Prosecution for non-filing Beyond penalties, the Income Tax Act also provides for prosecution in serious cases of non-filing. However, CA Ashish Karundia clarifies that in the context of Section 87A, prosecution may not be triggered. “Since after considering the 87A rebate, no tax would
remain payable, the condition for prosecution does not arise. For prosecution to be initiated, tax payable should actually exist,” he explains. In other words, while prosecution will generally not apply if no tax is payable, it is still safer to remain on the right side of the law by filing your return on time.
Why filing is beneficial Apart from compliance, timely filing offers practical advantages. “If TDS has been deducted — for instance, from interest income or dividends — then the refund can only be claimed by filing an ITR,” Karundia points out. This is especially relevant for pensioners or those with interest income from fixed deposits where banks deduct TDS. ITRs also serve as crucial financial documents. “It is often required when applying for loans or visas. Years later, if I purchase a house worth ₹1 crore or more, my ITRs will help justify that the funds used are from legitimate sources. Bank statements alone may not be enough,” says Karundia.
Final thoughts The rebate under Section 87A reduces tax liability but does not exempt you from filing returns. As Puri puts it, “The practical reality is that many small taxpayers may escape scrutiny. But the law provides enough room for penalties and complications, and therefore it’s safer — and correct — to file your ITR on time, even if your tax payable is zero.”
Source:https://thefynprint.com/taxation/why-you-must-file-itr-even-if-no?id=68a56ce e199e74312dddadf5
