Is ITR Filing Mandatory? Rules and Benefits in 2025
Introduction:-
In India, many people think filing Income Tax Returns (ITR) is only for the rich or salaried individuals. However, the truth is that ITR filing is essential for every eligible taxpayer, whether you are a salaried employee, self-employed, a business owner, a freelancer, or even earning income from investments.
Even if your income is below the taxable limit, filing an ITR can bring several advantages.
Let’s explore why you should file ITR and the top benefits of filing it regularly and on time.
What is an Income Tax Return (ITR)?
Income Tax Return (ITR) is a form in which a person reports their income, expenses, deductions, tax paid, and refund claim to the Income Tax Department of India. There are different types of ITR forms depending on your income sources, such as ITR-1, ITR-2, ITR-3, etc.
It is mandatory to file ITR if your income exceeds the basic exemption limit:
- ₹2.5 lakh for individuals below 60 years
- ₹3 lakh for senior citizens (60–80 years)
- ₹5 lakh for super senior citizens (80+ years)
- In the new tax regime, no income tax is payable up to the total income of Rs. 7 lakh.
Why Should You File an ITR?
Here are some of the most important reasons:
1. Legal Obligation
If your total income is above the exemption limit, filing ITR is mandatory under the Income Tax Act, 1961. Non-filing can attract penalties, notices, and legal issues. Staying compliant is a responsible and law-abiding step.
2. Avoid Penalties
If you don’t file your ITR on time, you may have to pay a late fee of up to ₹5,000 under Section 234F. Filing on time helps you avoid unnecessary penalties and interest.
3. Claim Tax Refunds
If excess TDS (Tax Deducted at Source) has been deducted from your income (like from salary, FD interest, etc.), you can only claim a refund by filing ITR. Without it, the money stays with the government.
4. Proof of Income
ITR serves as a valid income proof for visa applications, bank loans, applying for tenders, government contracts, etc. It’s more reliable than a salary slip or bank statement.
Major Benefits of Filing ITR
Let’s look at the practical, financial, and legal benefits of ITR filing in India:
1. Faster Visa Processing
Many embassies like the US, UK, Canada, and Schengen countries ask for ITR copies of the last 2-3 years when you apply for a visa. It shows financial stability and helps in smooth visa approvals.
2. Loan and Credit Card Approvals
Whether it’s a home loan, car loan, education loan, or even a credit card, banks often ask for the last 2-3 years of ITRs to verify your income. It builds your financial credibility and improves your chances of loan approvals.
3. Carry Forward Losses
If you file your ITR on time, you can carry forward certain losses (like business loss, capital loss, etc.) to adjust against future income, reducing your tax burden in future years. But this benefit is not available if you skip filing or miss the deadline.
4. Helps During High-Value Transactions
If you plan to:
- Purchase or sell a property
- Invest in mutual funds or stocks
- Deposit large sums in a bank account
Then, having a clean ITR record builds trust. The Income Tax Department matches your transactions with your ITR. A mismatch can trigger scrutiny.
5. Makes You Tax Compliant
Filing ITR keeps your records updated with the Income Tax Department. If your income increases in the future, you won’t face sudden scrutiny or notices, since your records are already clean.
Who Should File ITR Even If Not Mandatory?
Even if your income is below the taxable limit, it is still advisable to file ITR in these cases:
✅ Freelancers & Small Business Owners
Even if income is low initially, regular ITR filing builds your financial profile and helps with future business or loan needs.
✅ Senior Citizens
If they earn interest income or a pension, they should file an ITR to claim refunds or show financial clarity.
✅ Students or First-Time Earners
Filing ITR early in your career builds good habits and helps maintain a strong financial history.
✅ Individuals with Foreign Income/Assets
If you own foreign assets or earn from outside India, you are legally required to file ITR, even if your Indian income is below the limit.
Consequences of Not Filing ITR
- Penalties up to ₹5,000 under Section 234F
- Interest on due taxes
- Ineligibility to carry forward losses
- Increased chances of receiving IT notices
- Issues in applying for loans, tenders, or visas
Last Date for Filing ITR (FY 2024-25)
For individual taxpayers (not requiring audit), the due date is usually 31st July of the assessment year. For FY 2024–25, the due date is 31st July 2025.
Documents Required for ITR Filing
- PAN card & Aadhaar card
- Form 16 (for salaried employees)
- Bank statements/passbook
- TDS certificates (Form 16A)
- Details of investments and deductions
- Rent receipts (if claiming HRA)
- Capital gains details (if any)
Final Thoughts
Filing Income Tax Returns is not just a legal formality — it’s a smart financial practice. It builds your financial credibility, helps in refunds, improves chances of loan or visa approvals, and keeps you safe from penalties.
Even if you think you don’t earn enough to file ITR, you should do it to enjoy the long-term benefits. It’s an important step towards being a financially responsible citizen of India.
In India, only 6.68 pc of the population filed income tax returns in the 2023-24 fiscal.
In the USA, More than 219.9 million returns and other forms were filed electronically. These represented 82.5% of all filings. For individual tax returns, 93.3% were filed electronically.
In FY22, the number of ITRs filed was over 6.96 crore, up from over 6.72 crore in FY21 and over 6.48 crore in FY20. “In FY 2023-24, the percentage of the population that files Income Tax Return is 6.68 per cent.
(In FY 2023-24, the total number of persons filing income tax return is 8,09,03,315),”
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