If your gross income is less than the maximum amount excluded from tax, which is Rs 2,50,000, your tax obligation is zero, and you pay no taxes for the same. As a result, a nil return is an income tax return with a tax liability of "Zero or nil." The term "filing a nil return" refers to notifying the tax department that a taxpayer does not have any taxable income for a given fiscal year.
Why and Who Should File NIL Return?
Income tax returns are now necessary when applying for a visa or passport. It is also critical if you wish to apply for some kind of loan. You never know when you would need a loan, so it's always a good idea to be prepared with all the appropriate paperwork and documentation.
If you're a regular return filer, but your income this year is below the taxable cap. You should certainly file an income tax return so that you can keep track of your taxes from year to year.
If an individual's annual income is less than Rs.2.5 lakhs, he or she is not required to file a NIL return. Even if the taxable income is less than Rs.2.5 lakhs, it is recommended that a person file a NIL return if the assessee filed an income tax return the previous year.
Even if you are not under the taxable cap, the tax may be deducted at the source, such as when a bank deducts TDS on interest income over Rs10,000. You are entitled to a refund in certain situations. The easiest way to do that is to file a NIL return.
Apart from that, any citizen who owns a foreign asset or has signing authority in a foreign account is expected to file income tax returns, even if his annual income is less than Rs.2,50,000.
When you invest in the stock market, you can use capital losses to cover capital gains at a later date. The term for this process is "carrying forward of losses." This is only possible if you file tax returns on a yearly basis and keep track of your records.
It is in the taxpayer's best interests to file a nil return. If a zero return is filed, the taxpayer is entitled to move a loss forward to future years, minimizing future tax liability.
Regardless of the company's operation, earnings, or sales, all companies registered in India must file an income tax return in Form ITR-6 every year. As a result, all inactive and dormant businesses are expected to file a nill return. And if a corporation is being closed down, still the income tax should be filed. In addition, if the company's annual returns have been struck off the MCA, still they have to file returns.
Firms that operate as sole proprietorships must file an income tax return in the form of ITR-3 or ITR-4. Even if there is no business operation, a proprietorship firm that has previously filed an ITR-3 or ITR-4 form must file a NIL return.
Every year, regardless of business turnover, benefit, or operation, all Limited Liability Partnership (LLPs) registered in India must file an income tax return in Form ITR-5. A liability of Rs.5000 will be imposed if a business failed to file a NIL return under the Income Tax Act.
How to file NIL tax returns?
Filing zero tax returns are no different than filing standard income tax returns for any person. Before filing, keep all the mandatory documents handy such as Aadhar, PAN card, Bank account details, Form 16, and details of your investments. In a few easy measures, you can e-file your tax returns online.
Step 1: Log in to an e-filing
Step 2: Select the appropriate ITR form
Step 3: Enter your income details and deductions.
(Your income tax is calculated, and you will be informed that you owe no tax.)
Step 4: Submit your return to the Income Tax Department.
Step 5: Verify your ITR return using the preferred method
Benefits of filing NIL Income Tax return
1) It would be a lengthy and exhausting procedure to clarify the sources of earnings if anyone has not filed the ITR over the years. The ITR, on the other hand, would act as legal evidence of income received during the year.
2) Being self-employed prohibits you from obtaining earnings proofs such as a salary certificate from your employer or a Form 16 from the IRS. As a consequence, having an ITR on hand as evidence of income is the most convenient alternative.
3) Individuals with low earnings, whose total income is below the taxable cap, may believe they are not required to file tax returns because they do not owe any taxes. However, by filing an ITR, they would be able to obtain legal proof of income.
4) When you buy a higher life insurance policy or apply for a loan, the insurer will ask for proof of income in order to decide the amount of coverage you will receive. Bank statements or ITRs from the previous three tax years are required for this salary slip.
The above points have explained why, even if it is a Null return, it is always preferable to file an ITR. There are people in many families who have small incomes such as dividends, tuition fees, and small business income, who can file NIL returns to avoid any difficulties.