Some taxpayers face a simple dilemma: are they supposed to file their tax returns? Three years ago, the government had introduced a rule that anybody earning up to `5 lakh a year will not have to file returns if all taxes are paid and there is no income from other sources. Though this rule has been removed, a lot of people in that segment still believe they don't have to file their returns.It's time to clear the air about this. As per the law, if your gross taxable is above the basic exemption limit of `2.5 lakh a year, you have to file your return. The gross taxable income is after you have claimed all exemptions, such as HRA, conveyance allowance and LTA. As the table shows, the person with an income of `4 lakh a year is not supposed to file his returns because exemptions reduce his gross taxable income to `2.5 lakh.On the other hand, the person earning `3 lakh a year will have to file returns because he does not get any exemptions. Even though the deductions under Section 80C reduce his tax to nil, he is required to file his return. Similarly, even if all taxes have been duly paid, you still need to file your return. In the table, the person with `7 lakh income does not owe the tax department anything. Yet, the law requires him to file his return.What happens if you are supposed to file your returns but don't? As per the law, the penalty for non-filing of tax return is `5,000.However, experts say it is rare for the taxman to deal with such cases too harshly.Since you have not filed, the department will not have your registered mobile number or e-mail address. But when your income exceeds a certain level after a few years and you file your returns, you might get a flurry of texts and mails from the taxman asking you to file your returns for the previous years.Matters can take a serious turn if you don't respond to such pleas. The department may also issue a notice for not filing. More strict penalties, of up to `2 lakh, have been recently introduced for not responding to notices from the tax department.Incidentally, it is mandatory for residents with foreign assets to file returns, irrespective of their earnings. Individual who qualify as ordinarily resident of India and have foreign asset or income are mandatorily required to file a return in India even if they have zero income here.