ITR Series: Day 7: Myths You Must Unlearn Before Filing Income Tax Return

Overview

Filing an Income Tax Return (ITR) is a critical annual obligation for millions of Indian taxpayers. Despite the increased awareness in recent years, numerous misconceptions continue to circulate—resulting in either non-compliance or unnecessary panic.

 

In this article, we debunk the most common myths surrounding ITR filing with relevant legal context and practical examples, ensuring that taxpayers can separate fact from fiction.

 

Myth 1: ITR Filing Is Required Only If You Have Tax Payable

 

Fact:
Income Tax Return filing is not contingent only on whether you have tax liability. Several scenarios require mandatory filing, even if no tax is payable due to deductions or exemptions.

 

As per Section 139(1) of the Income Tax Act, an individual must file ITR if:

• Gross total income (before deductions under Chapter VI-A) exceeds the basic exemption limit (INR 2.5 lakh for individuals below 60).
• You have deposited more than INR 1 crore in a current account.
• You have incurred foreign travel expenses exceeding INR 2 lakh.
• You have paid electricity bills exceeding INR 1 lakh.
• You own foreign assets or have signing authority in foreign accounts.

Practical Example:
An individual with INR 4.5 lakh annual income and INR 2 lakh deduction under section 80C still needs to file an ITR because the gross total income exceeds the threshold.

 

Myth 2: Salaried Individuals Don’t Need to File ITR as TDS Is Already Deducted

 

Fact:
TDS (Tax Deducted at Source) by the employer does not exempt an individual from ITR filing obligations. Filing is mandatory if your total income exceeds the exemption limit.

 

Key Reasons for Salaried Individuals to File ITR:

• Claiming refunds in case of excess TDS.
• Reporting multiple income sources (e.g., salary + capital gains).
• Maintaining a consistent record for visa, loan, or credit card applications.
• Avoiding late filing penalties and compliance notices.

Myth 3: If You Miss the Deadline, You Can File Anytime Without Issues

Fact:

ITR has strict deadlines. The due date for Assessees (not subject to audit) is generally July 31st of the assessment year (AY). However, for AY 2025-26 due date has been extended to 15th September 2025.

 

If missed, a belated return can be filed under section 139(4) up to December 31st (subject to penalties). However, a belated return:

• Attracts a late filing fee under Section 234F (INR 1,000 to INR 5,000).
• Does not allow carry forward of certain losses (e.g., business loss, capital loss).

Key Insight:
Timely filing maximizes benefits and ensures compliance with other interlinked provisions (like MAT credit carry forward, refund interest calculation, etc.).

 

Myth 4: Students and Freelancers Are Exempt from ITR Filing

Fact:
There is no blanket exemption for students, freelancers, or part-time workers. If the gross total income exceeds the exemption threshold, ITR filing is mandatory.

 

This applies even if income is from:

• Freelancing
• Part-time gigs
• Scholarships (if taxable)
• Bank interest or investments

Note: Freelancers earning above INR 2.5 lakh annually (before deductions)/INR 3 lakh (for New Regime) must file returns and may need to consider presumptive taxation under Section 44ADA (for professionals) or 44AE/44AD (for businesses).

 

Myth 5: Filing ITR Leads to Increased Scrutiny by the Income Tax Department

Fact:
This is a common myth that discourages many from filing returns, especially those with minimal income. In reality:

• IT scrutiny is risk-based, not return-based.
• Honest and accurate filing reduces the risk of scrutiny.
• Non-filing or mismatched information (e.g., as per AIS/TIS) is more likely to trigger notices.

Moreover, ITRs form part of your financial profile, which is often reviewed for loans, visa applications, and regulatory assessments.

 

Myth 6: NRIs Are Not Required to File ITR in India

Fact:

Non-Resident Indians (NRIs) must file ITR in India if they:

• Earn income in India (e.g., rent, capital gains, interest, or salary sourced in India).
• Have total income in India exceeding the exemption limit (INR 2.5 lakh/ INR 3 lakh).

However, passive income like NRE interest (exempt under Section 10(4)(ii)) may not trigger filing, unless there are other sources. NRIs should also be cautious of Double Tax Avoidance Agreement (DTAA) implications.

 

Myth 7: ITR Filing is Only for Compliance — It Does n’t Offer Any Benefits

Fact:
Beyond compliance, filing ITR has several tangible benefits:

• Claiming tax refunds (especially for salaried and senior citizens).
• Creating a financial track record for creditworthiness.
• Faster processing for high-value financial transactions.
• Avoiding penalties and future notices.
• Ease of documentation in legal and financial matters (like visa or tender applications).

Final Thoughts

As the ITR filing deadline approaches, busting these myths becomes essential for ensuring correct and timely compliance. Whether you’re a salaried employee, business owner, NRI, or freelancer, understanding the nuances of income tax return filing will help you avoid unnecessary penalties and make the most of your eligible benefits.

 

Upcoming Reminder:

The due date for filing ITR for AY 2025–26 (FY 2024–25) is 15 September, 2025, for Assessees who are not required to get their accounts audited. Don’t wait till the last moment, start preparing early.