I am applying to the French embassy for a one-month Schengen visa. For proof of sufficient means, I have my bank statement (with slightly over $7000) and monthly pay slips (of about $1500). The document requirements say that I need to submit 3 years of IT returns, but I've only been working for 2 years and haven't filed IT returns even for those years. Can this be a cause for possible rejection of my application?
From experience, it comes down to the decision on the day by the person processing your application.
In essence, they're looking for flags, problems or reasons NOT to grant your application.
Your job is to plug those holes, answer questions and make it as smooth as possible.
In this case, the 'flag' is going to be 'needs three years tax returns, only has two'.
So they'll look for a reason validating this. If you have added a document (single page) stating that you've only been working two years, and have provided all tax returns from your entire work history, that should satisfy them that there's 1) nothing missing, 2) nothing being hidden and 3) the 'question' of the missing tax year has been answered.
Short version: document any gap / discrepancy in your application. It's very hard to have 'too much' documentation.
If you are travelling as a tourist then follow their guidelines carefully as mentioned on their website http://www.vfs-france.co.in/delhishortstayvisa.html
They don't require 3 years of IT return but only 1 year of IT return. What they will see if the amount you have in your bank account. France recognizes that to survive you must have EURO 62 per day. So if you are going for a month then you must have minimum 1860 Euro in your bank account. The more you have funds in your account the best.
Remember: Read their instructions carefully as per their official website. Don't listen to anybody. Make your documentation exactly what was mentioned on their website.
Good luck !!