Finance Minister Nirmala Sitharaman, in her Union Budget speech on Saturday, provided significant relief to millions of middle-class taxpayers by announcing that individuals earning up to Rs 12 lakh annually will not have to pay any income tax. This announcement is a part of the government’s ongoing efforts to reduce the tax burden on salaried individuals and promote a simplified tax regime. Sitharaman clarified that taxpayers with normal income up to Rs 12 lakh, excluding special rate income such as capital gains, would benefit from a tax rebate that ensures their final tax liability is zero. This measure is expected to benefit a large section of the working population, particularly salaried individuals and small business owners who fall within this income bracket.
Additionally, under the new tax regime, the government has introduced a standard deduction of Rs 75,000, further increasing the tax benefits for salaried individuals. This means that those earning up to Rs 12.75 lakh per year will have no tax liability once deductions and rebates are applied. The government’s objective behind these measures is to enhance disposable income, encourage spending, and boost overall economic growth.
However, despite the apparent tax relief, there remains a crucial question regarding whether individuals whose tax liability is reduced to zero still need to file an Income Tax Return (ITR). Many taxpayers might assume that since they are not required to pay any tax, they are also exempt from the obligation of filing an ITR. However, tax experts have clarified that this is not the case. Even if a person’s final tax liability is zero due to rebates and deductions, they may still be legally required to file an ITR, depending on their total income before considering exemptions.
The income tax filing requirement is primarily determined by an individual’s total income before deductions rather than the final tax payable. According to existing tax laws, individuals whose income exceeds the basic exemption limit must file an ITR, irrespective of whether they ultimately pay any tax. Under the old tax regime, this basic exemption limit was Rs 2.5 lakh, whereas, under the new tax regime, it has now been raised to Rs 4 lakh. This means that while individuals earning up to Rs 12 lakh are not required to pay any tax due to rebates under Section 87A, they must still file an ITR if their total income exceeds the exemption threshold.
Filing an ITR is not just a legal obligation but also an essential financial practice that comes with multiple benefits. Even for individuals whose tax liability is zero, filing an ITR is highly recommended as it serves as a crucial financial document. A properly filed ITR acts as valid proof of income and is often required when applying for loans, credit cards, and visas. Many banks and financial institutions require ITR records as part of their verification process before approving loans or credit applications. Having a consistent tax-filing history can improve one’s creditworthiness and enhance their eligibility for financial products.
Moreover, individuals who have had Tax Deducted at Source (TDS) on their income may be eligible for a refund if their final tax liability is zero. The only way to claim such a refund is by filing an ITR. Additionally, filing an ITR helps taxpayers maintain a transparent financial record with the government, reducing the chances of scrutiny or legal issues in the future. It is also beneficial in situations where income sources may fluctuate, such as in the case of freelancers, business owners, or professionals with variable earnings.
The government’s decision to provide tax relief to middle-class taxpayers is expected to have a far-reaching impact on household finances. By reducing tax liabilities, the measure is likely to increase disposable income, allowing individuals to spend more on consumption, savings, and investments. This, in turn, can contribute to economic growth by stimulating demand in various sectors. The new tax regime, which now offers a more simplified structure with a reduced number of slabs and higher exemption limits, is also aimed at encouraging more taxpayers to transition to the new system.
While the changes introduced in the budget bring welcome relief, taxpayers should remain well-informed about their filing obligations. Even if an individual’s tax liability is reduced to zero, they should not assume that they are exempt from filing an ITR. Understanding the nuances of tax laws, including exemptions, deductions, and filing requirements, is essential to ensure compliance and take full advantage of the benefits available under the new regime. Taxpayers are encouraged to seek professional advice if they are unsure about their obligations or eligibility for various deductions and rebates.
Overall, the Union Budget 2025 has reinforced the government’s commitment to making taxation more taxpayer-friendly, reducing the financial burden on middle-class individuals, and simplifying the process of tax compliance. While no tax liability up to Rs 12 lakh is a major relief, individuals must remain proactive in filing their ITRs to maintain a strong financial record, claim any eligible refunds, and avoid any inadvertent non-compliance with tax laws.
