A lot of salaried taxpayers probably just received their Form 16 from their employers. However, just because your Form 16 shows zero tax payable, it does not necessarily mean you can skip filing your Income Tax Return (ITR). Many taxpayers confuse having no tax liability with not having to file an ITR. Here's why that belief can prove costly and why filing an ITR is still mandatory.
What is the Section 87A rebate? Does it remove the need to file an ITR?
Section 87A offers a tax rebate for resident individual taxpayers whose total income is within a certain limit. This rebate can lower the tax payable and can bring the taxpayer's final tax liability down to NIL.
Also read : No Form 16? Here's how salaried taxpayers can file ITR using AIS and Form 26AS for FY 2025-26
Currently, under Section 87A, eligible taxpayers can effectively avoid paying tax on income up to Rs 7 lakh under the old tax regime and up to Rs 12 lakh under the new tax regime (Rs 12.75 lakh in the case of salaried employees after considering the standard deduction of Rs 75,000).
“The obligation to file an ITR is generally determined by the taxpayer's income level and other prescribed conditions, such as holding foreign assets, being a signing authority in a foreign account, making specified high-value deposits or expenditures, or satisfying other reporting requirements, rather than the amount of tax ultimately payable,” says Ashish Mehta, Partner, Khaitan & Co.
Accordingly, even if a salaried individual's Form 16 reflects zero tax after claiming the Section 87A rebate, they may still have to file an ITR if their income surpasses the basic exemption limit or any other mandatory filing requirement is triggered.
Keep in mind that the Section 87A tax rebate is not available for special rate incomes like capital gains (both long-term and short-term), virtual digital assets (VDA) and others.
Why should you file an ITR even if your tax liability is zero?
Filing ITR serves several practical purposes beyond tax compliance, including establishing income credentials for visa applications, loan processing, and other financial transactions.
“Moreover, this is also practically important because the ITR validates the income declared in Form 16, enables refund claims if any excess TDS/TCS exists, and reduces the risk of notices for non-filing where the Annual Information Statement reflects reportable transactions,” says CA Hitesh Jain, Partner - Direct Tax, N. A. Shah Associates LLP.
Further, ITR filing becomes particularly important and, in substance, mandatory if the taxpayer wishes to claim a refund or preserve the benefit of carry forward of eligible losses under the head “Profits and gains of business or profession” or “Capital gains”, he adds.
Is ITR filing mandatory even if your salary is below Rs 4 lakh?
Even where salary income is below ₹4 lakh, an individual may still be required to file an ITR if any of the following conditions are triggered during the financial year:
|
Trigger / Condition
|
Threshold
|
Practical Illustration |
| Deposits in Current Account(s) (Aggregate deposits in one or more current accounts with a banking company or co-operative bank) | Exceeds Rs. 1 crore in aggregate during the P.Y. | A business person routing vendor payments through a current account even with minimal net income |
| Deposits in Savings Account(s) (Aggregate deposits across one or more savings bank accounts) | Exceeds Rs. 50 Lakh in aggregate during the P.Y. | An individual receiving frequent family transfers or rental proceeds credited to a savings account |
| Foreign Travel Expenditure (Expenses incurred on travel to a foreign country for self or any other person) | Exceeds Rs. 2 lakh in aggregate during the P.Y. | Payment of airfare, hotel, and visa charges for a foreign family vacation, even if financed through credit card or LRS |
| Electricity Consumption Expenditure (Aggregate electricity charges paid during the year) | Exceeds Rs. 1 Lakh during the P.Y. | Electricity bills for a large residential property or a small home-based workshop crossing the threshold |
| Business Turnover / Sales / Gross Receipts (Total turnover or gross receipts from business) | Exceeds Rs. 60 lakh during the P.Y. | A trader operating under presumptive taxation u/s 44AD with turnover crossing Rs. 60 lakh but income within exemption limit |
| Professional Gross Receipts (Total gross receipts from a profession) | Exceeds Rs. 10 Lakh during the P.Y. | A freelance consultant or practicing professional (e.g., architect, designer) with billing above Rs. 10 lakh but after deductions income falls below exemption |
| Aggregate TDS / TCS (Total Tax Deducted at Source and/or Tax Collected at Source during the year) | Aggregate equals or exceeds Rs. 25,000 (Rs. 50,000 for Senior Citizens aged 60+) | An individual with FD interest, rent, or freelance income where banks/payers deduct TDS even if gross income is below the exemption limit |
|
Ownership of Foreign Assets / Signing Authority in Foreign Accounts (Resident and ordinarily resident individual who (i) holds an asset outside India (as beneficial owner or otherwise), (ii) is a beneficiary of a foreign asset, or (iii) has signing authority in any account located outside India) |
No monetary threshold; existence of such asset/authority is sufficient | An employee holding ESOPs of a listed foreign parent company, or a director with signing authority on an overseas subsidiary's bank account |
Important points taxpayers should know
According to Jain, taxpayers should also keep the following points in mind:
- High credit card spending alone is not a mandatory ITR filing trigger. However, foreign exchange-related transactions, overseas travel spends, remittances, and other high-value transactions may be reflected in AIS/SFT reporting. Therefore, taxpayers should reconcile AIS/Form 26AS and consider filing an ITR where such transactions are significant or inconsistent with the declared income profile.
- The Seventh Proviso to Section 139(1) was inserted by the Finance (No. 2) Act, 2019, effective from AY 2020-21. Rule 12AB was later notified to expand the prescribed mandatory filing triggers.
- Non-compliance with mandatory filing provisions and late filing may attract consequences, including fee under Section 234F. In cases involving non-disclosure of foreign assets, significant penalty exposure may also arise under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, depending on the facts.
- While filing the applicable ITR form, the taxpayer should correctly answer the question relating to mandatory filing under the Seventh Proviso in Part A – General Information and select the relevant trigger condition, wherever applicable.
Section 87A rebate can reduce your tax liability to zero, but it does not automatically exempt you from filing an Income Tax Return. Before assuming that no return is required, taxpayers should check whether they satisfy any of the mandatory filing conditions or need to file an ITR to claim refunds, carry forward losses or maintain proper financial records.
