Know why filing an ITR is beneficial even with no tax liability. Boost financial credibility, ease loan approvals, and secure visa processing.
Anisha Kumari | May 18, 2025 |
Why Filing an ITR is Important Even if You’re Not Required to Pay Tax
Most people having yearly incomes less than the basic exemption limit wonder if they can avoid filing an Income Tax Return (ITR). Financial planners firmly believe that, even where there is no tax burden, it makes sense to file an ITR since it provides tremendous long-term benefits. Apart from being a compliance, it assists in creating a formal financial identity in the current digitized economy.
Not filing an ITR even if income is less than the taxable threshold is regarded as a missed opportunity. Not filing an ITR is no longer merely considered a statutory requirement but an important step towards building financial credibility. Having a good ITR record each year builds one’s financial track record and can result in hassle-free interactions with financial institutions and other stakeholders.
There are a number of important advantages of filing an ITR voluntarily, even where no tax is payable. Some of the significant advantages are:
1. Evidence of income for freelancers, gig economy workers, and self-employed people where there is no formal salary receipts.
2. Visa support, particularly for nations like the US, UK, Canada, and Schengen countries, where past three/five years’ ITRs are usually asked for.
3. Improved likelihood of loan sanctions, as banks and NBFCs typically ask for 2–3 years of ITRs while sanctioning high-value loans, particularly above Rs. 30–40 lakh.
4. Possibility of claiming refunds on TDS levied on income generated through fixed deposits or freelance work.
5. Eligibility for several government subsidies, schemes, and grants that may call for ITR documents.
6. A legitimate ITR justifies high-value transactions and minimizes the Income Tax Department’s scrutiny.
Although no penalty is levied on those with income levels below the exemption limit, missing the ITR filing has long-term implications. Visa applications can be delayed or rejected if ITRs are not submitted. Banks and financial institutions will be reluctant to sanction big loans without a consistent income track record. Even individual financial moves such as buying property or seeking MSME benefits can hit a roadblock because of outstanding ITR records. If major financial transactions are conducted without an ITR being stored, they can draw unwanted scrutiny from tax officials.
According to the Income Tax Department and Central Board of Direct Taxes (CBDT), individuals whose income is less than Rs. 2.5 lakh (or Rs. 3 lakh for senior citizens) do not need to file returns. Rule 12AB, however, requires ITR filing in certain situations like:
1. Bank account deposits exceeding Rs. 1 crore
2. Foreign travel expense over Rs. 2 lakh every year
3. Electricity bills over Rs. 1 lakh annually
The CBDT has increasingly encouraged voluntary filing of ITR with awareness campaigns, bringing out the significance in a digitally supervised financial setup. Not only is filing an ITR about compliance with taxes, but it is a gesture in the direction of making a financial identity.
Filing an ITR, even if there is no tax liability, is a forward-looking act towards financial security and readiness. It provides access to various financial rewards and facilitates easier processing of transactions in the future. In the current data-driven age of finance, having an ITR filed is more beneficial than ever before.
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