Taxation · Provisions for filing Return of Income and Self Assessment

Persons Compulsorily Required to File Return of Income

Updated 5 October 2026 · Fact-checked

Under the Income-tax Act, 2025, a company or firm (including an LLP) must file a return every tax year, even with a loss, subject to any specific exceptions in the Act. Others must file if income before specified exemptions and deductions exceeds the basic exemption limit, or if a trigger applies, such as foreign assets, large deposits or high TDS.

Understand Persons Compulsorily Required to File Return of Income

A return of income is a statement of your income and tax for a tax year. The law makes it compulsory for some persons. For others it is optional, though still useful for claiming a refund or carrying forward losses.

There are three layers. First, companies and firms (an LLP is treated as a firm) must file whether they earn profit, make a loss or earn nothing, subject to any specific exceptions in the Act. No income threshold applies to them. Second, any other person must file if their total income, computed before giving effect to certain specified exemptions and deductions, exceeds the basic exemption limit. Third, even a person below that limit must file if a specified high-value trigger applies.

The income test is applied before three sets of reliefs:

the capital gains exemptions, such as those for reinvesting gains in a residential house, specified bonds or agricultural land
the exemptions for profits of specified units, such as SEZ units and export-oriented undertakings
the deductions from gross total income, such as those for specified investments, insurance, donations and similar items

Other reliefs allowed in computing income, such as the standard deduction from salary, are not added back. This rule stops a person from avoiding a return by using these reliefs to bring income below the limit. Use the basic exemption limit given in the question or applicable for the tax year and regime.

The high-value triggers apply to a person who is not otherwise required to file. They cover a large amount deposited in current accounts, heavy foreign travel or electricity spend, large business turnover or professional receipts, high TDS/TCS on the person's income or receipts, and large savings bank deposits. The amounts are aggregates for the tax year being tested. A separate rule requires a resident and ordinarily resident person to file if they hold assets or signing authority outside India.

In the exam, you are given facts and asked: must this person file? Check the person type first, then the income test, then each trigger. One met condition is enough.

Key rules to remember

Company and firm rule: Company or firm (incl. LLP, treated as a firm) → return compulsory every tax year, whatever the income or loss, subject to any specific exceptions in the Act; No income threshold applies. A loss-making or inactive entity must still file.
Income-limit rule: Income before specified exemptions and deductions > basic exemption limit → return compulsory; Applies to any person other than a company or firm, such as individuals, HUFs, AOPs and BOIs. Add back only the capital gains exemptions, the exemptions for specified units (such as SEZ units and export-oriented undertakings) and the deductions from gross total income. Do not add back other reliefs, such as the standard deduction.
Foreign asset rule: Resident and ordinarily resident + (foreign asset / financial interest / signing authority in foreign account) → return compulsory; Applies even if income is nil. Not applicable to a non-resident or a resident but not ordinarily resident (RNOR).
Specified high-value triggers (person not otherwise required to file): Aggregate current account deposits > ₹1,00,00,000 | foreign travel spend > ₹2,00,000 | electricity spend > ₹1,00,000; These are 'exceeds' tests, so an amount exactly equal to the limit does not trigger filing. Amounts are aggregates for the tax year being tested. Current account deposits are the total across one or more current accounts. Foreign travel spend is the expenditure you incur on travel to a foreign country for yourself or any other person.
Other specified triggers (person not otherwise required to file): Business turnover/sales/gross receipts > ₹60,00,000 | professional gross receipts > ₹10,00,000 | TDS + TCS deducted or collected on the person's income or receipts ≥ ₹25,000 (≥ ₹50,000 for a resident individual who is of the age of 60 years or more at any time during the tax year) | aggregate deposits in one or more savings bank accounts > ₹50,00,000; All are tested on the amounts for the tax year. Turnover, professional receipts and savings deposits are 'exceeds' tests. The TDS/TCS test is 'at least': ₹25,000 or more, or ₹50,000 or more for a resident individual who is of the age of 60 years or more at any time during the tax year. The higher limit applies only to such a resident individual, not to a non-resident senior citizen. A person who turns 60 during the tax year qualifies.

How to solve Persons Compulsorily Required to File Return of Income questions

Use the same order every time so you do not miss a trigger. Write the conclusion with the reason.

1Identify the person: company, firm/LLP, or other (individual, HUF, AOP, BOI). If company or firm, conclude 'return compulsory' and stop.
2Check residential status if a foreign asset is mentioned. The foreign asset rule applies only to a resident and ordinarily resident.
3Compute total income for the test: add back the capital gains exemptions, the exemptions for specified units and the deductions from gross total income. Compare with the basic exemption limit.
4If income is within the limit, test each trigger one by one: current account deposits, foreign travel, electricity, turnover, professional receipts, TDS/TCS on the person's income, aggregate savings deposits.
5Watch the wording: 'exceeds' means greater than; 'at least' means equal or more. Most triggers are 'exceeds' tests. TDS/TCS is the 'at least' test: ₹25,000 or more, or ₹50,000 or more for a resident individual aged 60 years or more at any time during the tax year. Check the exact amount against the threshold.
6Write the conclusion: state the rule, the fact that meets it and the result, for example 'electricity spend ₹1,20,000 > ₹1,00,000, so return is compulsory'.
7If no condition is met, say that filing is not compulsory, but add that filing may still be needed for a refund or to carry forward losses.

Quickest way: Person type, income test, trigger scan

When to use it: Use for MCQs and short 'is the person required to file?' questions where time is tight.

Company or firm in the question? Answer 'must file' at once. Eliminate any option saying 'not required due to loss'.
Look for the words 'foreign', 'abroad', 'electricity', 'current account', 'TDS', 'savings account' or 'turnover'. Each flags a trigger.
Compare the tax year's aggregate amount to the threshold. Check the boundary: electricity of exactly ₹1,00,000 does not qualify, and nor does turnover of exactly ₹60,00,000, because both must be exceeded. TDS/TCS of exactly ₹25,000 does qualify, because that test is 'at least'. For a resident individual aged 60 or more at any time during the tax year, the 'at least' limit is ₹50,000.
For income, add back the capital gains exemptions, the exemptions for specified units and the deductions from gross total income before comparing with the limit.
Written answer format: Rule → Fact → Comparison → Conclusion. Each line earns a step mark.

Common mistakes in Persons Compulsorily Required to File Return of Income

Applying the income test after capital gains exemptions and deductions from gross total income.
Students use 'total income' as computed for tax payment.
Fix: For the filing test, add back the capital gains exemptions, the exemptions for specified units and the deductions from gross total income first, then compare with the basic exemption limit. Do not add back other reliefs, such as the standard deduction.
Saying a loss-making company or firm need not file.
Students link filing with tax payment.
Fix: Companies and firms must file whatever their income or loss, subject to any specific exceptions in the Act. Separately, losses under business, capital gains and other heads (except house property) can be carried forward only if the return is filed on or before the due date. House property loss can be carried forward even if the return is filed late.
Treating a boundary amount as meeting an 'exceeds' test, or treating every trigger as 'exceeds'.
Students memorise thresholds without the wording.
Fix: Current account deposits (₹1 crore), foreign travel (₹2,00,000), electricity (₹1,00,000), turnover (₹60 lakh), professional receipts (₹10 lakh) and savings deposits (₹50 lakh) must be exceeded. Exactly the limit does not trigger. TDS/TCS of ₹25,000 or more (₹50,000 or more for a resident individual who is of the age of 60 years or more at any time during the tax year) is the 'at least' test.
Applying the foreign asset rule to an RNOR or non-resident.
Students remember 'foreign asset' but forget the residential status condition.
Fix: Check status first. The rule applies only to a resident and ordinarily resident.
Concluding 'not required' just because income is below the exemption limit.
Students stop after the income test.
Fix: Always scan the high-value triggers when income is low.
Ignoring that foreign travel spend includes spend for others.
Students count only their own trips.
Fix: Count spend on travel for yourself or any other person during the tax year.
Testing a single savings or current account instead of the total.
Students read the question's one account figure and compare it alone.
Fix: Add deposits across all savings accounts (or all current accounts) for the tax year, then compare with the threshold.

Worked examples

Example 1

Assume the basic exemption limit is ₹4,00,000. State whether a return is compulsory: (a) Rohan, resident individual, total income ₹3,50,000, electricity bill for the year ₹1,20,000. (b) Meera, resident individual, total income ₹2,00,000, foreign travel spend ₹1,50,000, savings bank deposits ₹40,00,000, TDS nil. (c) Pooja Traders Pvt. Ltd., loss of ₹5,00,000.

Show the solution

(a) Rohan is not a company or firm. His income ₹3,50,000 is below ₹4,00,000, so the income test is not met.
Check the triggers. Electricity spend is ₹1,20,000, which exceeds ₹1,00,000. The trigger is met.
(b) Meera's income ₹2,00,000 is below the limit. Foreign travel ₹1,50,000 does not exceed ₹2,00,000. Aggregate savings deposits ₹40,00,000 do not exceed ₹50,00,000. TDS is nil. No trigger is met.
(c) Pooja Traders Pvt. Ltd. is a company. A company must file whether it has profit or loss.

Answer: (a) Rohan must file, because of the electricity spend trigger. (b) Meera is not compulsorily required to file, though she may file voluntarily. (c) The company must file despite the loss.

Example 2

Assume the basic exemption limit is ₹4,00,000. Anil, a resident and ordinarily resident individual, earns salary income of ₹3,00,000. He also has long-term capital gain of ₹5,00,000 on sale of a plot, which is fully exempt because he reinvests it in a residential house as the law allows. He has no other income or trigger. Is he required to file a return?

Show the solution

Do not use total income after the exemption, which would be ₹3,00,000.
For the filing test, compute income before giving effect to the capital gains exemption: ₹3,00,000 + ₹5,00,000 = ₹8,00,000.
Compare ₹8,00,000 with the limit ₹4,00,000. ₹8,00,000 exceeds ₹4,00,000.
The income-limit condition is met, so no trigger is needed.

Answer: Anil must file a return, because his income before the capital gains exemption is ₹8,00,000, which exceeds the basic exemption limit of ₹4,00,000.

Exam tips

Start every answer with the person type. Companies and firms settle the question in one line.
Always state the threshold next to the fact, for example '₹1,20,000 > ₹1,00,000'. This earns step marks.
MCQs often hide a trap: a capital gains exemption that brings income below the limit, or an RNOR with foreign assets. Check both.
Remember the principle in one line: the law blocks exemptions and deductions from being used to avoid filing.
Learn the thresholds as a list of numbers with their 'exceeds' or 'at least' wording. Quick revision just before the exam pays off.

Practice questions from Provisions for filing Return of Income and Self Assessment

Persons Compulsorily Required to File Return of Income in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Persons Compulsorily Required to File Return of Income: frequently asked questions

Is a return compulsory if my income is below the basic exemption limit?

Not always. If you are a company or firm, you must file regardless. A person below the limit must also file if a trigger applies, such as foreign assets, high electricity spend, large current account deposits or high TDS/TCS.

Must a loss-making company or firm file a return?

Yes. Companies and firms must file a return every tax year, whether they have profit, loss or nil income, subject to any specific exceptions in the Act. Losses under business, capital gains and other heads (except house property) can be carried forward only if the return is filed on or before the due date. House property loss can be carried forward even if the return is late.

Who must report foreign assets in a return?

A resident and ordinarily resident person who holds an asset or financial interest outside India, or has signing authority in a foreign account, must file. This applies even when their income is nil. A non-resident or RNOR is not covered by this rule.

Which exemptions and deductions are ignored when testing whether my income exceeds the limit?

You compute income before giving effect to the capital gains exemptions, the exemptions for specified units such as SEZ units, and the deductions from gross total income. Other reliefs, such as the standard deduction, are not added back. This is why a person with large exempt capital gains may still have to file.