The common perception that filing an Income Tax Return (ITR) is only for salaried professionals or business owners is a misconception, according to financial experts. A growing number of students and unemployed youth are being encouraged to file their ITRs, even when their income is below the statutory tax exemption limit. This practice, while not compulsory, offers substantial benefits that can pave the way for future financial stability.
The Rationale for Voluntary Filing
The Income Tax Act mandates ITR filing only for individuals whose annual income exceeds the basic exemption limit. As per the latest rules, this limit is Rs 2.5 lakh under the old tax regime and Rs 3 lakh under the new tax regime (for the financial year 2025-26, the new tax regime exemption limit has been increased to Rs 4 lakh). This typically excludes most students and unemployed individuals. However, experts emphasise that voluntary filing is a smart financial habit.
Key Benefits of Filing ITR
Filing an ITR, even with zero or low income, provides a host of advantages that can significantly ease future financial hurdles:
Proof of Income: A filed ITR serves as a reliable and official document of your income. This is often a mandatory requirement for various applications, including education loans, overseas scholarships, and visa applications to countries with stringent financial checks, such as the USA, UK, and Canada.
Claiming Tax Refunds: If a bank deducts Tax Deducted at Source (TDS) on interest earned from fixed deposits or if TDS has been withheld on payments for freelance work, the only way to get this money back is by filing an ITR. By filing a return, you can claim a refund for the excess tax paid.
Facilitating Large Transactions: In the event of a significant financial transaction in the future, such as depositing a large sum of money (e.g., Rs 50 lakh or more) in your bank account, a history of ITR filings can provide a credible explanation for the source of funds, avoiding potential scrutiny from the tax authorities.
Carrying Forward Losses: For those who have invested in stocks or mutual funds and incurred losses, filing an ITR is crucial. It allows you to report these capital losses and carry them forward for up to eight subsequent years. This can be used to offset future capital gains, thereby reducing your tax liability.
Building Financial Credibility: Consistently filing ITRs helps build a strong financial history. This can be beneficial for obtaining loans in the future, whether for a car, a home, or a business, as banks and financial institutions consider it a testament to your financial discipline and creditworthiness.
The Process is Simple
The process of filing an ITR has been streamlined and can be completed online with a few basic documents. The primary documents required are a PAN card, Aadhaar card, and bank statements. For those with specific incomes, additional documents like Form 16 (for salaried individuals) or bank-issued TDS certificates (for interest income) might be necessary. By adopting this habit early, students and the unemployed can proactively manage their financial future, securing a stronger position for their long-term goals.
