Nil Income Tax Return

What is a Nil Return and When Should You File One?

Nil Returns explained: Know its importance, when to submit it, and avoid potential penalties.

Written by : Knowledge Centre Team

2025-12-14

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10 minutes read

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Under India’s income tax laws, individuals below 60 years of age are not liable to pay tax if their annual income is less than ₹2.5 lakh under the old tax regime. The Union Budget 2025 has significantly increased the exemption. If you opt for the new regime in FY 2025–26 and have a net taxable income up to ₹12 lakh, you are eligible for a full tax rebate under Section 87A, which brings your tax liability down to zero. In both cases, your income tax liability is considered NIL, and filing an Income Tax Return (ITR) is not mandatory.

This raises an important question: Do we need to file an ITR for zero tax?

Key Takeaways
 

  • Filing a NIL ITR can help with visa, loan, and passport applications by serving as proof of financial history
  • Section 206AB mandates higher TDS rates if you fail to file an ITR for two consecutive years
  • Claiming TDS refunds from banks or freelance work requires filing an income tax return, even with zero tax liability
  • Tax-saving investments like PPF, ELSS, and NPS can help reduce taxable income to zero while securing future savings
  • Common mistakes in NIL ITR filing include incorrect details, missing verification, and failing to declare TDS deductions

What is a Nil Return in Income Tax?

If your income is below the threshold limit, your tax liability is zero, and you are not required to pay any income tax. Under the old tax regime, the ITR nil return limit is ₹2.5 lakh for individuals below 60 years of age. Under the new tax regime, the exemption limit has been significantly raised, and as per the Union Budget 2025, no tax is payable if your income is up to ₹12 lakh in FY 2025–26 (assessed in AY 2026–27).

NIL Return is a way to communicate to the income tax department that you do not have any taxable income for that financial year. Filing an income tax return is optional if your income is below the taxable limit. However, you should still file one to avail of the various benefits it offers.

Why Should You File a NIL Return?

Many ask, “Is it necessary to file ITR for zero tax?” The simple answer is that filing a NIL return is not just about crossing a task item in your list; it offers several benefits. Some of the benefits of filing ITR, more specifically, NIL returns are listed below:

  1. Income tax returns may be asked for when applying for a visa, especially work, study, or long‑term stay visas.
  2. Passport applications accept the ITR/Assessment Order as a valid proof of address
  3. Loan applications require ITR copies as supporting evidence to ascertain eligibility. You may presume, in July, that you don’t need a loan, but you can’t predict what will happen in November. It is better to keep documents handy instead of paying a penalty later.
  4. Banks may deduct TDS on your interest on deposits. You will have to file an ITR to claim a refund.
  5. If you have worked as a consultant or a freelancer for some organisation, they may deduct TDS when disbursing your payment. Filing an ITR is the only way to claim a refund if you don’t fall in the tax bracket.
  6. Your income in a given year may fall below ₹2.5 lakh under the old tax regime or below ₹12 lakh under the new tax regime, even if it was higher in previous years. Filing an ITR in such cases helps maintain a proper chronological record of your income.
  7. If you own a foreign asset, filing ITR is mandatory even if your income is below the threshold.
  8. Carrying forward losses incurred in the stock market is possible only when you regularly file ITRs.

How to File NIL Return Online?

The procedure to file a NIL return is not different from other ITRs. Follow the same procedure on the Income Tax Department site. Steps listed below for your ready reference for 0 ITR filing:

  1. Keep the following handy: PAN, Aadhaar Card, salary info, bank account details, details of TDS, and Form 16
  2. Visit the income tax department’s ITR filing site/page
  3. Enter your registered user ID (generally PAN or Aadhaar numbers)
  4. On entering your user ID, you will be taken to the next screen
  5. Enter your password
  6. In case you do not remember your password, click on “forgot password”. On clicking “forgot password:
    1. You will be prompted to enter your user ID again
    2. Select an option to reset the password
      1.  OTP on the mobile number registered with Aadhaar
      2. Upload Digital Signature Certificate (DSC)
      3. Use e-filing OTP
      4. After validation, you will be prompted to reset your password.
  7. Select the e-filing option
  8. Fill in your income data and investment amounts, if any
  9. Any TDS deducted will be shown (you may validate with the 26AS form)
  10. The income tax will be auto-computed and will show no due (ZERO)
  11. Submit the return
  12. E-Verify or send a signed ITR-V form copy to CPC Bangalore, within 30 days of filing
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Did You Know?

Non-filing of ITR for two consecutive years, even with NIL income, can lead to double TDS rates under Section 206AB.

 

Source: Income Tax Department

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How to Reduce Your Tax Liability to Zero?

In case your salary falls in the tax bracket, you can still plan your income structure and investments such that your net tax liability becomes zero. There are several provisions in the Income Tax Act, that help you save money and also save on taxes - when opting for the older regime. Some key points that can help are:

Improved Salary Structure:

If possible, discuss with your employer and design a tax-efficient salary structure. Some common tax-free or partially exempt components include:

  • House Rent Allowance (HRA), which can be structured as a reasonable percentage of basic salary and is partially exempt if you actually pay rent and opt for the old regime
  • Car maintenance allowance /reimbursement, which can be exempted up to specified monthly limits depending on engine capacity and usage for official purposes
  • Driver allowance/reimbursement, where the car is used for official purposes, up to notified limits, can be partly tax‑free
  • Newspaper and phone allowances/reimbursements for official use are typically not taxable up to a reasonable limit, as per company policy and tax rules

These components work best when supported by proper bills and proof of official use and are generally relevant only if you continue with the old tax regime.

Under the new tax regime, many taxpayers can now bring their tax liability down to nil through the enhanced Section 87A rebate on income up to ₹12 lakh, even without many of the traditional deductions available in the old regime.

Investment in Tax-Saving Deposits:

Invest money in instruments that give you tax benefits (both at the time of investing as well as at maturity). The following investments and expenses offer full tax-free benefits:

  • Contribute to both the Employee Provident Fund (EPF) and National Pension System (NPS)
  • Invest in Unit Linked Insurance Plans (ULIPs) that give both investment + insurance benefits
  • Contribute to the Public Provident Fund (PPF) and Sukanya Samriddhi Yojana
  • Add children’s school or college tuition fees to your deductions list
  • Have a term life insurance and health insurance coverage for the family
  • Purchase a house with a home loan

Do note that these tax-saving investments are long-term and you will need to contribute regularly to benefit from them. You cannot just decide to invest in them and forget. However, if you need a one-off investment for reducing your tax outflow in a financial year, you can consider other tax-saving options.

Other Tax-Saving Investments

The following tax-saving options do not need regular contributions and may work better as a one-off investment:

Even if your income is below the taxable income tax nil return limit, it is best to file your ITR to avoid receiving a non-filing notification from the income tax department. A NIL ITR can come in handy on several occasions and may also help you get a refund for TDS deducted by the bank or any firm that you worked for on gig projects.

Common Mistakes to Avoid When Filing a Nil Return

Filing a NIL ITR may seem straightforward, but even minor errors can lead to delays or unnecessary scrutiny. Here are some common mistakes to avoid:

  1. Providing Incorrect Personal Details: Ensure that your PAN, Aadhaar, and bank account details are correctly entered. Small errors in these fields can lead to processing issues or refund delays.
  2. Selecting the Wrong ITR Form: Using an incorrect ITR form may result in the rejection of your zero ITR filing. If you are unsure, check the Income Tax Department’s guidelines for the appropriate form.
  3. Forgetting to Verify Your ITR: Your NIL ITR filing remains incomplete until you verify it. You can do this through Aadhaar OTP, net banking, or by sending a signed copy of ITR-V to the CPC Bangalore.
  4. Not Declaring TDS Deductions: Even if your income is below the taxable limit, banks or employers may have deducted TDS (Tax Deducted at Source). Filing an ITR helps claim a refund.
  5. Missing Out on Investment Declarations: Declaring your tax-saving investments ensures that any TDS deducted is refunded. Even with zero ITR filing, you should report investments under Section 80C, 80D, or 24(b).
  6. Failing to Disclose Freelance or Gig Income: Freelancers and gig workers often have TDS deducted from the payments they receive. If this income is below the taxable limit, filing a NIL return allows you to claim a refund.
  7. Not Keeping a Record of Previous ITRs: Even if you are proceeding with zero ITR filing, keep a record for future reference. ITR records help with visa applications, loan approvals, and financial planning.
  8. Delaying the Filing Process: While there’s no penalty for not filing a NIL ITR filing, missing the deadline may create complications when applying for loans, visas, or financial aid in the future.
  9. Ignoring Section 206AB Compliance: If you fail to file your ITR for two consecutive years and have TDS transactions, you may be subject to higher TDS rates under Section 206AB.
  10. Not Using the Pre-filled Data Option: The Income Tax portal provides pre-filled forms with salary, interest, and tax details. Review and update this data to ensure accuracy before filing.

Conclusion

Filing a NIL ITR is a financial safeguard. Even if you have no taxable income, an ITR serves as proof of earnings, aids in refund claims, and helps you avoid future tax complications. A zero ITR filing also strengthens your financial profile, making it easier to apply for loans, visas, and government subsidies. 

Moreover, it ensures compliance with tax laws and prevents higher TDS deductions under Section 206AB. Take a proactive approach and file your NIL ITR on time. Small efforts made today can save you from financial hurdles tomorrow.

Glossary

  1. NIL Return: An income tax return filed despite having no taxable income, serving as proof of financial transactions.
  2. Section 206AB: A tax rule that imposes higher TDS rates on non-filers of income tax returns for two consecutive years.
  3. TDS (Tax Deducted at Source): A portion of income deducted by employers or banks before payment, refundable through ITR filing.
  4. ITR-V (Income Tax Return-Verification): A form generated after e-filing, requiring verification to complete the tax return process.
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FAQs

If you ask, “Is it necessary to file nil return?”  The answer is no, but filing a NIL return can help in visa applications, loan approvals, and claiming TDS refunds.

 

Section 206AB imposes a higher TDS rate on individuals who fail to file ITRs for two consecutive years.

 

Yes, filing an ITR is necessary to claim a refund if TDS has been deducted from salary or bank interest.

 

Filing a NIL ITR helps in getting loans, visas, and tax refunds and ensures compliance with income tax regulations.

 

Log in to the income tax e-filing portal, enter income details, verify pre-filled data, and submit your return.

 

Those asking, “If i have no income should I file a tax return?,” should know that filing a nil ITR can help you receive a TDS refund. If you wish to carry forward certain losses, or need income proof for loans/visas, even though your income is below the basic exemption limit. It also becomes effectively necessary if you want a clean compliance record for future financial or immigration purposes.

A nil ITR acts as formal proof of income and is commonly asked for by banks for loans and by embassies for visa processing. It also allows you to claim refunds of any excess TDS/TCS and helps build a consistent financial record that can support future credit and other applications.

ITR filing is mandatory below the taxable limit if you have specified high‑value transactions (such as large cash deposits, high electricity bills, or high foreign travel spends), substantial TDS/TCS (above notified thresholds), or foreign assets/signing authority in foreign accounts. It is also required if you want to claim a tax refund or carry forward certain losses, even when the final tax payable is nil.

Log in to the Income Tax e‑filing portal, choose “File Income Tax Return”, select the relevant assessment year and appropriate ITR form (often ITR‑1 for eligible individuals), and fill/confirm your income details so that taxable income is within the exemption/rebate limits and tax computed is zero, then submit and e‑verify. The process is identical to a normal return; it is treated as a nil ITR because the final tax liability shown is nil.

If your income is genuinely below the basic exemption limit and any mandatory‑filing condition does not cover you, you generally don’t face late‑filing fees or tax penalties for not filing. However, you cannot claim TDS refunds or carry forward eligible losses. Non‑filing does not by itself increase future TDS rates. Still, it may weaken your loan/visa documentation and, if you skip filing when it is legally required (due to high‑value transactions or foreign assets), you risk notices, interest, and penalties.

If you don't have any income during the year, you are generally not required to file an income tax return in India. However, filing a nil ITR is optional and can be useful if you want formal proof of income for purposes such as a visa, loan applications, or refund claims. You must file a return if you own foreign assets, have high-value transactions, or need to carry forward certain losses, even with zero income.

Disclaimer - This article is issued in the general public interest and meant for general information purposes only. The views expressed in this blog are solely those of the writer and do not necessarily reflect the official policy or position of Canara HSBC Life Insurance Company Limited or any affiliated entity. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the blog or the information, products, services, or related graphics contained in the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk. You should consult with a qualified professional regarding your specific circumstances before taking any action based on the content provided herein.

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