New Delhi: Many taxpayers are under the impression that they need not file an Income Tax Return (ITR) if their income is below Rs 2.5 lakh (old regime) or Rs 3 lakh (new regime). However, the rules go beyond simply your income. According to experts, tax law now triggers a filing obligation based on your spending as well. Two separate machineries do this – one makes filing legally mandatory above certain spend thresholds, and the other leaves a tax footprint on your PAN that you can only recover and reconcile by filing.
Mechanism 1: Foreign travel above Rs 2 lakh makes filing mandatory by law
According to Mrinal Mehta, Joint Secretary at Bombay Chartered Accountants’ Society, under the seventh proviso to Section 139(1) of the Income-tax Act, 1961, an individual must file a return even if total income is below the basic exemption limit if, during the year, they have incurred expenditure exceeding Rs 2 lakh for themselves or any other person for travel to a foreign country. Here are a few details people miss:
- It is an aggregate across the year – multiple trips add up, and it covers airfare, visa and accommodation, whether the travel was for business or personal leisure.
- The words “or any other person” matter: if you fund a parent’s or child’s overseas trip and the expenditure crosses Rs 2 lakh, you attract the filing obligation.
“For returns being filed this season (AY 2026-27, i.e. FY 2025-26 income), the 1961 Act applies. From FY 2026-27, these provisions carry into Section 263 of the Income Tax Act, 2025, where the categories of persons obligated to file remain broadly the same. The obligation does not disappear under the new law,” Mehta said.
Mechanism 2: Luxury spending and forex leave a TCS trail you can only settle by filing
Even where filing isn’t strictly mandated by the proviso, high-value spending now shows up against your PAN through Tax Collected at Source (TCS):
Luxury goods: From 22 April 2025, under Section 206C(1F), sellers collect 1 per cent TCS on a single item valued above Rs 10 lakh across a notified list – wristwatches, art and antiques, collectibles such as coins and stamps, yachts and helicopters, sunglasses, handbags and purses, shoes, sportswear and equipment, home theatre systems, and racing or polo horses. This is deposited against the buyer’s PAN, appears in Form 26AS, and can be claimed as a credit when filing the ITR; if liability is nil, the excess is refundable.
Foreign travel and remittances: Under Section 206C(1G), for FY 2025-26, TCS applies on LRS remittances above a Rs 10 lakh threshold – 20 per cent for general purposes – while overseas tour packages attract 5 per cent up to Rs 10 lakh and 20 per cent beyond. (Budget 2026 cuts several of these rates – e.g. tour packages and education/medical to 2 per cent – but only from 1 April 2026, FY 2026-27.)
The crucial linkage
TCS is not an extra tax; it is an advance tax sitting on your PAN. The only way to claim it back or set it off is to file a return. “So a person with a modest income who buys a Rs 12 lakh watch or books a Rs 15 lakh overseas package has tax money parked with the government that is simply lost unless they file. Separately, every such transaction populates the Annual Information Statement (AIS), giving the department a clear basis to ask why no return was filed,” Mehta explained.
Key things to keep in mind
- Don’t equate “no tax” with “no return.” If you crossed the foreign-travel ₹2 lakh mark (own or others’), filing is mandatory irrespective of income.
- Check your AIS and Form 26AS before concluding you needn’t file. Luxury purchases, forex and tour packages now flow into these statements; reconcile them.
- File to recover TCS. For low-income individuals, the return is often the only route to a refund of TCS collected on luxury or travel expenses.
- Tick the correct reason when filing under the seventh proviso. The ITR has a specific field for high-value-transaction filers – getting this wrong invites avoidable queries.
- Keep a clean trail of the source of funds for high-value spends. Spending that visibly outstrips declared income is a classic trigger for scrutiny.
- Remember that non-filing has a cost beyond penalties. You forfeit the TCS credit and leave an unexplained AIS footprint that can mature into a notice or a best-judgment assessment.
