Direct Tax Laws and International Taxation · Return of Income

Compulsory Filing of Return of Income under Section 263

Updated 11 October 2026 · Fact-checked

Section 263 of the Income-tax Act, 2025 lists the persons who must furnish a return for a tax year. Companies and firms always file. Others file if income before specified deductions exceeds the basic exemption limit, or if a listed condition applies, such as carrying forward a loss or holding foreign assets.

Understand Compulsory Filing of Return of Income

A return of income is the statement in which you report your income for a tax year to the department. Section 263(1)(a) says who must furnish it on or before the due date. Think of the section as a checklist. If you fall under any one clause, you must file.

The clauses work in two groups. For some persons the duty is unconditional. Section 263(1)(b) says companies, firms, universities and colleges referred to in section 45(3)(a), business trusts, investment funds under section 224, and resident (other than not ordinarily resident) persons with foreign assets must file regardless of income or loss.

For other persons the duty is conditional. A person other than a company or firm must file if total income, computed before giving effect to Chapter XVII-B, Schedule VIII (Sl. No. 1) and the deductions under sections 82 to 88 (Chapter IV-E or Chapter VIII), exceeds the maximum amount not chargeable to tax. A specified entity files if its total income, without giving effect to section 11, exceeds that amount.

Two more clauses matter in cases. A person who has a loss under "Profits and gains of business or profession" or "Capital gains" and wants to carry it forward must file. A person other than a company or firm who meets conditions prescribed for the tax year must also file.

The Central Government can exempt classes of persons by notification (sub-section 3). Also, section 263 does not apply to a specified senior citizen in a tax year in which tax has been deducted at source under section 393(1) [Table: Sl. No. 8(iii)] (sub-section 8(b)).

Key rules to remember

Unconditional filers: Company, firm, section 45(3)(a) university/college, business trust, section 224 investment fund, resident (not NOR) with foreign assets → file regardless of income or loss; Section 263(1)(a)(i), (ii), (v), (vi), (vii), (ix) read with (1)(b).
Person other than company or firm: Total income before Chapter XVII-B, Schedule VIII (Sl. No. 1) and deductions under sections 82 to 88 > maximum amount not chargeable to tax → file; Test income before the deductions. Income after deductions can be below the limit and you still file.
Specified entity: Total income without giving effect to section 11 > maximum amount not chargeable to tax → file; Specified entities are defined in section 263(9)(c).
Loss carry forward: Loss under business/profession or capital gains + intention to carry forward → file; Applies to any person. House property or other-source losses are not covered by this clause.
Foreign assets clause: Resident other than NOR + at any time in the tax year holds a foreign asset (as beneficial owner or otherwise), has signing authority in a foreign account, or is a beneficiary of a foreign asset → file; Beneficiary limb does not apply where the income from the asset is includible in the income of the person in item (A).
Due dates (Table in section 263(1)(c)): 30 Nov: section 172 applies. 31 Oct: company; audited assessee; partner of audited firm (or spouse). 31 Aug: business income, not audited. 31 July: any other assessee.; Dates fall in the financial year after the tax year. Detail is in the due dates topic.

How to solve Compulsory Filing of Return of Income questions

Use this order for any question asking whether a person must file a return.

1Identify the person: company, firm, individual, HUF, AOP, trust, university, fund or other.
2Check the unconditional list first: company, firm, section 45(3)(a) university or college, business trust, section 224 investment fund, or a resident (not NOR) with foreign assets or signing authority. If yes, the answer is file, even with nil income or loss.
3If not, compute total income before the specified deductions (sections 82 to 88, Chapter XVII-B, Schedule VIII Sl. No. 1). For a specified entity, compute it before section 11.
4Compare with the maximum amount not chargeable to tax for that person. If it is exceeded, the person must file.
5Check the special clauses: business or capital gains loss to be carried forward, or prescribed conditions.
6Check the relief: notified exemption, or a specified senior citizen whose tax was deducted under section 393(1) [Table: Sl. No. 8(iii)].
7State the conclusion with the clause, and give the due date if asked.

Quickest way: Three-gate test

When to use it: Use for MCQs and short case questions asking whether filing is compulsory.

Gate 1: Is the person a company, firm, trust or fund type, or a resident with foreign assets? If yes, file.
Gate 2: Is income before deductions above the exemption limit, or is there a business or capital gains loss to carry forward? If yes, file.
Gate 3: Is there a notified exemption or a senior-citizen TDS exception? If yes, no duty. Otherwise no duty.

Common mistakes in Compulsory Filing of Return of Income

Testing income after Chapter VI-A style deductions against the exemption limit.
Students remember the old habit of using net taxable income.
Fix: Section 263(1)(a)(iii) tests income before Chapter XVII-B, Schedule VIII (Sl. No. 1) and the deductions under sections 82 to 88. Compute that figure first.
Saying a firm or company with a loss need not file.
Students apply the exemption-limit test to every person.
Fix: Section 263(1)(b) requires companies and firms to file regardless of income or loss.
Letting an individual with a loss from house property carry it forward without filing.
Students think any loss qualifies.
Fix: The loss clause covers only business or profession and capital gains losses.
Requiring a not ordinarily resident person to file because of foreign assets.
Students remember only 'foreign assets'.
Fix: The clause applies to a resident other than not ordinarily resident. Such a person is outside it.
Applying the specified senior citizen exception without the TDS condition.
Students recall only the age-based relief.
Fix: Section 263(8)(b) applies only for the tax year in which tax was deducted under section 393(1) [Table: Sl. No. 8(iii)].
Using the old 'nine months' revised-return limit while discussing filing rules.
Older notes are still in circulation.
Fix: Under the amended sub-section (5), a revised return can be filed within twelve months from the end of the tax year, or before assessment, whichever is earlier.

Worked examples

Example 1

Ravi Traders LLP, a firm, had a business loss of ₹4,20,000 in the tax year and no other income. The partners say no return is needed because there is no taxable income. Is the firm right?

Show the solution

Identify the person: a firm.
Section 263(1)(a)(ii) lists a firm, and section 263(1)(b) says it must file regardless of income or loss.
The loss does not remove the duty. The loss clause (viii) also applies if it wants to carry the loss forward.

Answer: The firm is wrong. It must furnish a return by the due date, and filing is also needed to carry the loss forward.

Example 2

Meena, a resident individual, is ordinarily resident. Her total income before deductions under sections 82 to 88 is ₹3,10,000, below the maximum amount not chargeable to tax. She holds shares in a US company through a foreign brokerage account. Must she file?

Show the solution

Meena is not a company or firm, so test the conditional clauses.
Income before specified deductions is below the exemption limit, so clause (iii) is not met.
She is a resident other than not ordinarily resident, and she holds an asset (financial interest in an entity) located outside India during the tax year.
Clause (ix) applies and section 263(1)(b) makes filing compulsory regardless of income.

Answer: Yes. Meena must file under section 263(1)(a)(ix) even though her income is below the exemption limit.

Exam tips

Write the clause number with the answer. A line like 'section 263(1)(a)(ii) and (1)(b)' earns marks.
In case questions, first look for residential status. It decides whether the foreign asset clause applies.
Always say 'before deductions under sections 82 to 88'. Examiners look for this phrase.
For due dates, check whether the person is audited and whether section 172 applies, then match the Table.

Practice questions from Return of Income

Compulsory Filing of 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.

Compulsory Filing of Return of Income: frequently asked questions

Which section of the Income-tax Act, 2025 deals with return of income?

Section 263 deals with the return of income. It lists who must file, the due dates, belated, revised and updated returns, and defective returns.

Must a company file a return if it has a loss?

Yes. Section 263(1)(b) requires a company to furnish a return regardless of income or loss.

Does an individual below the exemption limit ever have to file?

Yes. If the individual is a resident other than not ordinarily resident with foreign assets or signing authority, or has a business or capital gains loss to carry forward, filing is compulsory.

Can the government exempt some persons from filing?

Yes. Under sub-section (3), the Central Government may notify classes of persons exempt from filing, subject to conditions.