No immunity is there even if ultimate income tax liability is nil up to Rs. 5 Lakh

The recent interim budget has proposed to raise the tax rebate u/s 87A up to Rs. 12,500/- if income does not exceed Rs. 5 Lakh. As a result, there will not be any tax liability if income is up to Rs. 5 Lakh.

An important questions now emerges is whether return filing will be mandatory for next year i.e., FY 2018-19 (AY 2019-20) if income is not exceeding Rs. 5 Lakh?

It is time to visit section 139 which stipulates the condition for filing return of Income.

Section 139 reads as under:

Return of income.

139. (1) Every person,—

(a)  being a company or a firm; or

(b)  being a person other than a company or a firm, if his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax,

shall, on or before the due date, furnish a return of his income or the income of such other person during the previous year, in the prescribed⁵⁴ form and verified in the prescribed manner and setting forth such other particulars as may be prescribed :

Provided that a person referred to in clause (b), who is not required to furnish a return under this sub-section and residing in such area as may be specified by the Board in this behalf by notification in the Official Gazette, and who during the previous year incurs an expenditure of fifty thousand rupees or more towards consumption of electricity or at any time during the previous year fulfils any one of the following conditions, namely :—

 (i)  is in occupation of an immovable property exceeding a specified floor area, whether by way of ownership, tenancy or otherwise, as may be specified by the Board in this behalf; or

(ii)  is the owner or the lessee of a motor vehicle other than a two- wheeled motor vehicle, whether having any detachable side car having extra wheel attached to such two-wheeled motor vehicle or not; or

(iii)

(iv)  has incurred expenditure for himself or any other person on travel to any foreign country; or

(v)  is the holder of a credit card, not being an “add-on” card, issued by any bank or institution; or

(vi)  is a member of a club where entrance fee charged is twenty-five thousand rupees or more,

shall furnish a return, of his income during any previous year ending before the 1st day of April, 2005, on or before the due date in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed :

Provided further that the Central Government may, by notification in the Official Gazette, specify the class or classes of persons to whom the provisions of the first proviso shall not apply :

Provided also that every company or a firm shall furnish on or before the due date the return in respect of its income or loss in every previous year :

Provided also that a person, being a resident other than not ordinarily resident in India within the meaning of clause (6) of section 6, who is not required to furnish a return under this sub-section and who at any time during the previous year,—

(a)  holds, as a beneficial owner or otherwise, any asset (including any financial interest in any entity) located outside India or has signing authority in any account located outside India; or

(b)  is a beneficiary of any asset (including any financial interest in any entity) located outside India, shall furnish, on or before the due date, a return in respect of his income or loss for the previous year in such form and verified in such manner and setting forth such other particulars as may be prescribed:

Provided also that nothing contained in the fourth proviso shall apply to an individual, being a beneficiary of any asset (including any financial interest in any entity) located outside India where, income, if any, arising from such asset is includible in the income of the person referred to in clause (a) of that proviso in accordance with the provisions of this Act:

Provided also that every person, being an individual or a Hindu undivided family or an association of persons or a body of individuals, whether incorporated or not, or an artificial juridical person, if his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year, without giving effect to the provisions of ⁵⁵[clause (38) of section 10 or] section 10A or section 10B or section 10BA or Chapter VI-A exceeded the maximum amount which is not chargeable to income-tax, shall, on or before the due date, furnish a return of his income or the income of such other person during the previous year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed.

Explanation 1.—For the purposes of this sub-section, the expression “motor vehicle” shall have the meaning assigned to it in clause (28) of section 2 of the Motor Vehicles Act, 1988 (59 of 1988).

Explanation 2.—In this sub-section, “due date” means,—

(a)  where the assessee other than an assessee referred to in clause (aa) is—

 (i)  a company ; or

(ii)  a person (other than a company) whose accounts are required to be audited under this Act or under any other law for the time being in force; or

(iii) a working partner of a firm whose accounts are required to be audited under this Act or under any other law for the time being in force,

the 30th day of September of the assessment year;

(aa)  in the case of an assessee who is required to furnish a report referred to in section 92E, the 30th day of November of the assessment year;

(b)  in the case of a person other than a company, referred to in the first proviso to this sub-section, the 31st day of October of the assessment year;

(c)  in the case of any other assessee, the 31st day of July of the assessment year.

Explanation 3.—For the purposes of this sub-section, the expression “travel to any foreign country” does not include travel to the neighbouring countries or to such places of pilgrimage as the Board may specify in this behalf by notification in the Official Gazette.

Explanation 4.—For the purposes of this section “beneficial owner” in respect of an asset means an individual who has provided, directly or indirectly, consideration for the asset for the immediate or future benefit, direct or indirect, of himself or any other person.

Explanation 5.—For the purposes of this section “beneficiary” in respect of an asset means an individual who derives benefit from the asset during the previous year and the consideration for such asset has been provided by any person other than such beneficiary.

It may be noted that the return filing is mandatory in case of person other than company and firm if the total income exceeds the amount maximum amount which is not chargeable to income tax.

Total income refers to the income after deduction permissible under Chapter VIA and don’t include any exempt income also. In short, in the case of individual, if the income after deduction u/s 80C (LIF/PPF/NSC etc), 80D (Mediclaim), 80E (Education loan interest) etc exceeds the basic exemption limit then return filing would be mandatory even if the ultimate tax liability is nil due to tax rebate u/s 87A.

By incorporating the tax rebate provision for exempting tax on income up to Rs. 5 Lakh, FM has tried to keep the number of taxpayer figures intact.

Return would be mandatory even if income is below Rs. 5 Lakh. No immunity is there even if ultimate income tax liability is nil.