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Direct and Indirect Taxation · Filing of Return of Income

Who Is Required to File a Return of Income

Updated 10 October 2026 · Fact-checked

A return of income is the statement of income a person furnishes for a tax year. Under section 263 of the Income-tax Act, 2025, companies, firms and certain other persons must always file. Others must file if income before specified deductions exceeds the basic exemption limit, or if a listed condition applies.

Understand Return of Income: Meaning and Persons Obliged to File

A return of income is the form in which you report your income for a tax year to the Income-tax Department. Tax is computed on it, credit for tax already paid is claimed, and refunds are processed. Section 263 of the Income-tax Act, 2025 lays down who must file it, when, and in what manner.

The section creates two kinds of obligation. For some persons, filing is compulsory regardless of income or loss. For others, filing depends on a test of income or on a specific condition.

The always-file group, under section 263(1)(b), is: a company, a firm, a university or college referred to in section 45(3)(a), a business trust, an investment fund referred to in section 224, and a resident (other than not ordinarily resident) who holds foreign assets or has signing authority in a foreign account, or is a beneficiary of a foreign asset (clause (a)(ix)). Even a company with a loss must file.

The income-test group covers a person other than a company or firm (clause (a)(iii)), and a specified entity (clause (a)(iv)). The test is applied to total income before giving effect to Chapter XVII-B, Schedule VIII (Table: Sl. No. 1), or the deductions under sections 82 to 88 (Chapter IV-E or Chapter VIII, as applicable). So a person whose income is reduced below the exemption limit only by those deductions still has to file. For a specified entity, the test is total income before giving effect to section 11.

A third group is condition-based. A person who has a business or capital gains loss and wants to carry it forward must file (clause (a)(viii)). A person other than a company or firm who meets prescribed conditions must file (clause (a)(x)). The Central Government may exempt classes of persons by notification (sub-section (3)). A specified senior citizen under section 402(39) is outside section 263 for a year in which tax was deducted at source under section 393(1) [Table: Sl. No. 8(iii)] (sub-section (8)(b)).

Key rules to remember

Always file (regardless of income or loss)
Company | Firm | University/college (s.45(3)(a)) | Business trust | Investment fund (s.224) | Resident (not NOR) with foreign assets/signing authority/beneficiary
Section 263(1)(b) names clauses (a)(i), (ii), (v), (vi), (vii) and (ix). Loss or nil income does not excuse filing.
Income test for a person other than company or firm
File if total income, before Chapter XVII-B, Schedule VIII (Sl. No. 1) and deductions under sections 82 to 88, > maximum amount not chargeable to income-tax
Clause (a)(iii). Test is on income before those deductions, not after.
Income test for a specified entity
File if total income before giving effect to section 11 > maximum amount not chargeable to income-tax
Clause (a)(iv). Specified entities are listed in section 263(9)(c).
Loss carry forward
Loss under 'Profits and gains of business or profession' or 'Capital gains' to be carried forward → file
Clause (a)(viii). Loss under other heads is not covered by this clause.
Foreign asset test
Resident other than NOR + at any time in tax year holds foreign asset / has signing authority / is beneficiary → file
Clause (a)(ix). Beneficiary case does not apply where the income from the asset is includible in the income of the person in item (A).
Exemption from filing
Central Government notification (s.263(3)); specified senior citizen with TDS under s.393(1) [Sl. No. 8(iii)] (s.263(8)(b))
Check the exact conditions before applying either relief.

How to solve Return of Income: Meaning and Persons Obliged to File questions

For any question asking whether a person must file a return, test the person against section 263(1)(a) in a fixed order.

  1. 1Identify the person's status: company, firm, individual, HUF, trust, university, specified entity and so on.
  2. 2If the person is a company, firm, university or college under section 45(3)(a), business trust or investment fund, say filing is compulsory regardless of income or loss, and stop.
  3. 3Check residential status. If the person is a resident other than NOR, check for foreign assets, signing authority or being a beneficiary of a foreign asset. If yes, filing is compulsory.
  4. 4For other persons, compute total income before the deductions under sections 82 to 88 and before Chapter XVII-B and Schedule VIII (Sl. No. 1). Compare with the maximum amount not chargeable to tax.
  5. 5Check whether the person has a business or capital gains loss to carry forward. If yes, filing is compulsory.
  6. 6Check any prescribed conditions or exemptions, including the senior citizen relief in sub-section (8)(b).
  7. 7State the conclusion with the clause number and, if needed, mention that a belated or updated return rules exist.

Quickest way: Three-gate check

When to use it: Use in MCQs and short-answer questions where a person's facts are given and you must say whether filing is mandatory.

  1. Gate 1: Is the person a company, firm, university, business trust or investment fund? If yes, must file.
  2. Gate 2: Is the person a resident (not NOR) with a foreign asset or foreign account signing authority? If yes, must file.
  3. Gate 3: Is income before the section 82 to 88 deductions above the exemption limit, or is there a business or capital gains loss to carry forward? If yes, must file.
  4. If all three gates are clear, check for a notified exemption or the senior citizen relief.

Common mistakes in Return of Income: Meaning and Persons Obliged to File

  • Saying a company with a loss need not file

    Students link filing only with taxable income.

    Fix: Recall that clause (b) makes filing compulsory for companies and firms regardless of income or loss.

  • Applying the exemption limit after deductions

    Students compute net total income and compare it with the limit.

    Fix: Use total income before the deductions under sections 82 to 88 and before Chapter XVII-B and Schedule VIII (Sl. No. 1), as clause (a)(iii) states.

  • Treating any loss as a reason to file

    Students generalise the carry-forward rule.

    Fix: Clause (a)(viii) covers only business or profession losses and capital gains losses that the person wants to carry forward.

  • Applying the foreign asset rule to non-residents or NOR persons

    Students remember only 'foreign asset'.

    Fix: The rule applies to a resident, other than not ordinarily resident.

  • Confusing the filing obligation with the due date

    Both sit in the same section.

    Fix: First decide who must file, then use the due date table in clause (c) as a separate step.

Worked examples

Example 1

Ramesh Traders Pvt. Ltd. has incurred a loss of ₹4,00,000 in the tax year. The directors say that no return is needed as there is no taxable income. Advise.

Show the solution
  1. The assessee is a company, covered by section 263(1)(a)(i).
  2. Under section 263(1)(b), persons in clause (a)(i) must furnish a return on or before the due date regardless of income or loss.
  3. So the loss does not remove the obligation.

Answer: The company must file its return for the tax year on or before the due date, even though it has a loss.

Example 2

Meena, a resident individual (other than NOR), has a salary income of ₹3,50,000 for the tax year, so her total income before deductions under sections 82 to 88 is ₹3,50,000. She has no business or capital loss. She holds a bank account in Singapore on which she has signing authority. Must she file a return, assuming that the exemption limit is higher than her income?

Show the solution
  1. Meena is not a company, firm or other entity in the always-file list.
  2. The income test in clause (a)(iii) is not met, since income is below the exemption limit.
  3. Check clause (a)(ix): she is a resident other than NOR and has signing authority in an account located outside India during the tax year.
  4. Under section 263(1)(b), persons in clause (a)(ix) must file regardless of income or loss.

Answer: Yes. Meena must file a return because she has signing authority in a foreign account, even though her income is below the exemption limit.

Exam tips

  • In MCQs, look for the words 'regardless of income or loss'. They point to companies, firms and the other clause (b) persons.
  • Always state the clause number, such as section 263(1)(a)(ix), to earn step marks.
  • Use the 2025 Act's terms: tax year, never assessment year.
  • If a question gives gross income and deductions, apply the exemption-limit test to income before the section 82 to 88 deductions.
  • Do not quote the exemption limit unless the question supplies it.

Practice questions from Filing of Return of Income

Return of Income: Meaning and Persons Obliged to File in other exams

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

Return of Income: Meaning and Persons Obliged to File: frequently asked questions

Must a person with income below the exemption limit file a return?

Not always, but sometimes yes. Filing is compulsory for companies, firms and other clause (b) persons regardless of income. It is also compulsory if a person has a business or capital gains loss to carry forward, or holds foreign assets as a resident other than NOR.

Is a return needed to carry forward a loss?

Yes, for a business or profession loss or a capital gains loss. Section 263(1)(a)(viii) requires a return from a person who intends to carry such a loss forward. It must be furnished by the due date to keep the carry-forward right under the Act's conditions.

Does the exemption limit test use income before or after deductions?

Before. For a person other than a company or firm, the test ignores Chapter XVII-B, Schedule VIII (Sl. No. 1) and the deductions under sections 82 to 88. A person whose income falls below the limit only because of those deductions still has to file.

Can the Government exempt persons from filing?

Yes. Section 263(3) allows the Central Government to exempt classes of persons by notification, on the conditions it specifies. Section 263(8)(b) also excludes a specified senior citizen for a year in which tax was deducted at source as stated there.