Income Below Basic Exemption Limit? You May Still Be Required to File an ITR

The Seventh Proviso to Section 139(1): Why the Return Asks Whether You Were Required to File at All

1. The question every filer sees

Part A - General Information of every income-tax return form since AY 2020-21 carries the question: "Are you filing return of income under the Seventh proviso to section 139(1) but otherwise not required to furnish return of income?" The question appears for every filer salaried, business, professional or otherwise and must be answered Yes or No before the return can be validated. For the majority of taxpayers the correct answer is "No", yet the field routinely causes confusion, and an incorrect "Yes" can misdescribe the legal basis of the return. Understanding what the proviso does, and why the utility asks the question of everyone, requires going back to the structure of Section 139(1) itself.

2. The statutory scheme

Section 139(1) of the Income-tax Act, 1961 casts the obligation to furnish a return of income on two broad categories: under clause (a), every company and every firm, in every case, irrespective of income or loss; and under clause (b), every other person whose total income — computed before giving effect to specified exemptions and deductions, as enumerated in the sixth proviso — exceeds the maximum amount not chargeable to tax. A person falling in clause (b) whose income remains below the basic exemption limit is, under the main provision, under no obligation to file.

The Finance (No. 2) Act, 2019 (Act No. 23 of 2019) altered this position by inserting the seventh proviso to Section 139(1) with effect from 01.04.2020, i.e., from AY 2020-21. The proviso mandates that a person referred to in clause (b), who is not otherwise required to furnish a return under Section 139(1), shall nevertheless furnish a return on or before the due date if, during the previous year, such person:

(i) has deposited an amount or aggregate of amounts exceeding one crore rupees in one or more current accounts maintained with a banking company or a co-operative bank; or

(ii) has incurred expenditure of an amount or aggregate exceeding two lakh rupees, for himself or any other person, for travel to a foreign country; or

(iii) has incurred expenditure of an amount or aggregate exceeding one lakh rupees towards consumption of electricity; or

(iv) fulfils such other conditions as may be prescribed.

The legislative object, as reflected in the memorandum to the Finance (No. 2) Bill, 2019, was to ensure that persons entering into high-value transactions furnish a return even where their declared total income falls below the taxable threshold — a tax-base-widening measure driven by transaction data rather than income data.

3. The prescribed conditions: Rule 12AB

Clause (iv) of the proviso is an enabling provision. Exercising the power thereunder, the CBDT issued Notification No. 37/2022 dated 21.04.2022 [G.S.R. 307(E)], inserting Rule 12AB in the Income-tax Rules, 1962 through the Income-tax (Ninth Amendment) Rules, 2022. Rule 12AB prescribes four additional triggers, applicable from AY 2022-23 onwards. The complete set of conditions now stands as follows.

Three features of the scheme deserve emphasis. First, the conditions are alternatives: satisfaction of any one is sufficient to attract the filing mandate. Second, the tests are transaction-based, not income-based; the quantum of taxable income is irrelevant once a trigger is crossed. Third, the deposit-based triggers cover all modes — cash, cheque and electronic transfer alike — and the foreign travel trigger covers expenditure incurred for any other person, not merely the taxpayer's own travel.

4. Why the utility asks the question of everyone

The question in Part A serves to record the legal basis on which the return is furnished, and the e-filing system cannot determine that basis without the taxpayer's declaration. Three consequences flow from the answer.

First, the flag distinguishes a return filed under the main provision of Section 139(1) from a return filed solely under the seventh proviso. A person whose total income exceeds the basic exemption limit is filing under clause (b) proper and must answer "No" — even if such person also happens to have crossed one of the transactional thresholds. The "Yes" answer is reserved for the person who would not have been required to file at all but for the proviso; on selecting "Yes", the utility requires the specific trigger and the relevant amount to be identified.

Second, the declaration feeds the Department's data-matching architecture. The transactional triggers correspond to information the Department already receives through the Statement of Financial Transactions under Section 285BA read with Rule 114E, TDS/TCS statements, and collections such as TCS on overseas tour programme packages and remittances under the Liberalised Remittance Scheme. The Annual Information Statement consolidates this data against the PAN. A person who has crossed a trigger and neither files nor is captured under the main provision is precisely the case the proviso was designed to surface; conversely, the declaration in the return allows the system to reconcile the filing against the reported transactions.

Third, the flag governs validation. A return filed only under the seventh proviso may legitimately declare total income below the exemption limit with nil tax; the flag enables the utility to accept such a return as a valid Section 139(1) return rather than treating the filing as anomalous.

5. Practical consequences of the mandate

The proviso requires the return to be furnished "on or before the due date". A person covered by the proviso who misses the due date may still furnish a belated return under Section 139(4), but the fee under Section 234F and the usual consequences of belated filing follow. Non-filing altogether exposes the person to a notice under Section 142(1), and — given that every trigger in the scheme is independently reported to the Department — the probability of the omission going unnoticed is low. It is also worth noting that the return filed under the proviso is a full return in the applicable ITR form; there is no abbreviated format, and the usual disclosure requirements, including bank account details and schedule-level reporting, apply.

For practitioners, the recurring situations are predictable: the proprietor whose business routes receipts through a current account and crosses the ₹1 crore deposit mark in a low-margin year; the household where a parent funds a child's foreign education travel; the family member in whose name the electricity connection stands while the premises are shared; and the retired individual whose savings account receives maturity proceeds crossing ₹50 lakh. In each case the filing obligation arises regardless of taxable income, and supporting records — bank statements, travel invoices, electricity bills, Form 26AS/AIS — should be retained even though nothing is annexed to the return.

6. Position under the Income-tax Act, 2025

The Income-tax Act, 2025 applies from tax year 2026-27, i.e., for income earned on or after 01.04.2026. As clarified in the FAQs published on the e-filing portal, the return for FY 2025-26 (AY 2026-27) continues to be governed by the Income-tax Act, 1961, and the seventh proviso to Section 139(1) therefore remains the operative citation for the current filing season.

Under the 2025 Act, the return-filing provisions of Sections 139, 139D and 194P of the 1961 Act stand consolidated into a single provision — Section 263. The proviso-based drafting of the old Act has been recast into an enumerated clause structure: Section 263(1)(a) lists the categories of persons obligated to file, and the seventh-proviso mandate is carried forward as a clause covering a person, other than a company or firm, who during the tax year fulfils such conditions as may be prescribed. The transactional thresholds will accordingly operate through the rules to be prescribed under the 2025 Act, and the corresponding question in the return forms for tax year 2026-27 onwards can be expected to reference Section 263 rather than the seventh proviso. Until then, practitioners should continue to cite the seventh proviso to Section 139(1) read with Rule 12AB for all filings up to and including AY 2026-27.

7. Conclusion

The seventh proviso to Section 139(1) converts specified high-value transactions into an independent trigger for return filing, decoupled from taxable income. The question in Part A of the ITR is not a formality: it records whether the return rests on the income test of clause (b) or on the transactional test of the proviso, and it anchors the Department's reconciliation of the return against transaction data it already holds. For most taxpayers the answer is a simple "No"; for the person below the exemption limit who has crossed any one of the seven triggers, the answer is "Yes" — and the obligation to file is as binding as if the income test had been met.

Disclaimer: This article is for general informational and educational purposes only and does not constitute professional advice or a legal opinion. Readers should refer to the relevant statutory provisions, rules and notifications, and obtain professional advice before acting on any matter discussed herein. The author and the firm accept no responsibility for any loss arising from reliance on this article.