NIL-Return-Income-Tax

NIL Return Income Tax

NIL Return Income Tax

Nil return filing means communicating to the Income Tax Department that the taxpayer does not have any taxable income for a particular financial year. Filing of a nil return is in the taxpayer’s own interest. If a nil return is filed, the taxpayer is allowed to carry forward a loss to future years, and hence reduce the tax liability in the future. In the event the taxpayer fails to file the nil return, such carry forward would not be possible. Thus, taxpayers should ensure to file the nil return even in the absence of a taxable income. Also, filing of a nil return is mandatory under the Income Tax Act for certain types of taxpayers. By filing a nil return, the taxpayer would declare to the Income Tax Authorities that the taxpayer had no income or activities during the assessment year. In this article, we look at the procedure for filing a nil return under the Income Tax Act.

Individuals

Under the Income Tax Act, an individual having more than Rs.2.5 lakhs of income is required to file an income tax return in ITR-1 or ITR-2 form each year. Income tax return for individuals is due on or before the 31st of July. Failure to file an income tax return could attract a penalty of Rs.5000 if the return due on 31st July is filed before 31st December and a penalty of Rs.10,000 if the return is filed after 31st December. The penalty for late filing income tax return is capped at Rs.1000 if the annual income is less than Rs.5 lakhs. If an individual has less than Rs.2.5 lakhs of income in a year, he or she is not required to file NIL return. However, it is recommended that an individual file NIL return, even if the taxable income is less than Rs.2.5 lakhs if the assessee had filed an income tax return for the previous year. Taxpayers should note that an individual can file income tax returns, even if the taxable income is less than the basic exemption limit of Rs.2.5 lakhs.

Proprietorship

Proprietorship firms are required to file income tax return in form ITR-3 or ITR-4. Form ITR-4 can be filed by taxpayers who have opted for the presumptive taxation scheme. In case of proprietorship firm where ITR-3 or ITR-4 form had been filed previously, NIL return must be filed even if there is no business activity. For most proprietorship firms, even if there is no revenue or activity, there would be certain expenditure incurred which can be carried forward as a loss. Hence, in case of a proprietorship firm, even if there is no activity, NIL return must be filed.

LLP

All LLPs registered in India are required to file an income tax return each year in Form ITR-5, irrespective of business turnover or profit or activity. If after incorporation an LLP has not commenced any activity, the LLP would still be required to file NIL income tax return and MCA annual return – Form 8 and Form 11. Failure to file NIL return under Income Tax Act for a company would lead to a penalty of Rs.5000, if the return is filed before 31st December and a penalty of Rs.10,000 if the return is filed after 31st December.

Do I have to file NIL return for LLP?

Yes, an LLP will have to file NIL return mandatorily even if there is no revenue or activity in the LLP. NIL return filing is mandatory even for LLPs that have not opened a bank account.

Company

All companies registered in India are required to file an income tax return each year in Form ITR-6, irrespective of business activity or revenue or profits. Hence, NIL return filing is mandatory for dormant companies or inactive companies also. In case a company is being wound-up, it would still have to file income tax and company annual return before being struck-off from the MCA Register of Companies.

Do I have to file NIL return for Company?

Yes, a company will have to file NIL return mandatorily even if there is no revenue or activity in the company. NIL return filing is mandatory even for Companies that have not opened a bank account.

Penalty for Not Filing NIL Return

In case a taxpayer who is required to file NIL return does not file his/her income tax return on or before 31st July, a penalty of Rs.5000 will be applicable from 1st August. The penalty will be further increased to Rs.10,000 if the income tax return is not filed before 31st December of the same assessment year. In case a taxpayer has a taxable income of less than Rs.5 lakhs, the penalty is capped at Rs.1000.

NIL Return Income Tax

NIL return filing under Income Tax is mandatory for the specified types of business entities even if there is no activity or if the business has not commenced. In case of individuals as well, it is recommended that they file NIL return for income tax, even if they have a taxable income of less than Rs.2.5 lakhs per annum once they have begun filing income tax returns.

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