The due date for filing tax returns for individual taxpayers is 31st of July of the assessment year. It is an annual obligation for taxpayers and while many of us take assistance from the experts, a lot of us prefer to do it ourselves.
While it seems a pretty straightforward process, it is not uncommon for individuals to make mistakes that can lead to unnecessary complications or penalties.
Given the myriad of allowances, deductions, clauses, and regulations, it’s quite easy to feel overwhelmed by the complexities of Income Tax laws.
In this blog we will discuss some common mistakes that taxpayers make while filing their income tax returns. By familiarizing yourself with these pitfalls and taking proactive steps to prevent them, you can enhance the accuracy of your ITR filing, minimize potential tax liabilities, and ensure compliance with the prevailing tax regulations.
What is ITR?
Let us first try to understand what ITR is. ITR stands for Income Tax Returns. As per the Income Tax Act in India, every individual, HUF, companies, partnership firms, and other entities need to file their income tax returns annually if their income exceeds the specified threshold limits. The form to be filed depends on the type of taxpayer, the nature of income, and other factors.
It is a legal obligation and a means to declare income at the same time claim deductions and avail benefits provided under tax laws.
What are the common mistakes made while filing ITR?
Few of the mistakes that taxpayers make while filing their Income tax returns are as listed below:
- Incorrect Tax Form
Every taxpayer needs to file their return using the correct tax form. The form depends on the source of their income earned. Choosing incorrect ITR form will render the return as “defective” or “invalid”. So it is very essential to choose the correct ITR form to successfully file your returns.
- Incorrect personal or correspondence details
Taxpayers should make sure to give correct PAN, Aadhar and address details. The email ids and contact number should also be accurate and in alignment with the information provided in PAN database. All communication and notices by the income Tax Department would be sent to the address provided in the last ITR. If the address is incorrect, it may result in the notices being delivered to an incorrect location.
- Incorrect bank details
The taxpayer must ensure that the bank details that they enter are accurate and verified. The bank details include the name of the bank, address, Account number and the IFSC code.
Many taxpayers unintentionally provide incorrect bank information which cause delay in tax refunds as refunds are credited directly to bank accounts by the department. If the details are incorrect, the refund might not be credited.
- Not declaring income from all sources
It is crucial to disclose all sources of income while filing your return. Income from various sources like rent from residential or commercial property, interest from savings or fixed deposit accounts, dividends from equity shares, capital gains etc. often go overlooked due to lack of awareness and proper knowledge.
- Income from previous job or information of job change
If you have changed job during the financial year it is crucial to report income from both the previous and the current jobs to avoid discrepancy in the TDS certificate and the form 26AS.
- Failure to reconcile 26AS form
All incomes included in Form 26AS must be reported, as these details are already there with the tax department. In case of any mismatch, the tax department may send a notice. A mismatch in Form 26AS and Form 16 may also lead to lesser refunds received by the taxpayer.
- Not checking Bank statement
Bank statements must be thoroughly checked to identify any gifts received, interest income or other types of income. Since ITR forms require mentioning the number of all operative bank accounts, it’s crucial to accurately report all income received to ensure compliance and avoid discrepancies.
- Not mentioning tax exempted income
Even the income that is exempted from tax should be reported. Failure to do so would attract notice from the tax department. All taxpayer must file return if the income is above 2.5lac which is the basic exemption limit.
- Not reporting interest from Income tax refunds
Not reporting interest received on refunds from income tax can be traced to form 26AS which can cause discrepancies in the return. This should be reported under the head income from other sources.
- Not verifying form ITR V
Verifying the return after filing is as important as filing the return. Without verification of the return it will not be processed by the IT department. Verification can be done either by sending the signed Acknowledgement copy to CPC Bangalore or doing an online E-verification using Aadhar OTP, EVC etc.
Failure to verify your return will attract notice from the department stating that your return is “invalid” and if you fail to respond to the notice, it is considered that the return was never filed by you. This will result in imposing of penalties and fee for non-filing of return.
- Late filing of Income tax return
You may file the return after the due date in this case you are deprived of certain rights. Losses cannot be carried forward to the next year. Late filing fees will be applicable. Extra Interest will also be payable in case of tax liability. The refund procedure also gets delayed.
- Not keeping evidence of deductions claimed in income tax return
Maintenance of records/evidence/ proofs of expenses/ investments is required for all deductions, exemptions claimed in the return like children’s tuition fee, LIC, PPF, medical insurance etc. Lacking proper evidence for these claims can lead to denying such deductions during a scrutiny assessment, increasing your tax obligation. These should ideally be kept for at least 7 years.
- Not paying Advance Tax/Self-Assessment Tax
Taxpayers sometimes fall in higher tax bracket due to insufficient TDS deductions, particularly on interest income from banks, which might be deducted at a lower rate. In these situations they might need to calculate tax which is payable additionally and needs to pay as an advance tax. Self-Assessment tax is paid at the time of filing of return. And all the self-assessment and advance tax paid details need to be entered in the Income Tax Return filed.
- Submitting false/fake documents
Taxpayers sometimes submit fake receipts or invoices to claim deductions under section 80C or 80D or to claim HRA. This might lead to serious consequences on being caught as the department can easily verify these documents.
- Failure in submitting required forms
Specific forms are required to be submitted to claim certain exemptions like Form 10E to claim relief on salary arrears under section 89(1). These forms should be submitted before filing the income tax return.
- Not determining correct Residential Status
The residential status of a taxpayer plays an important role while filing your income tax return. It is imperative that you determine the correct residential status to avoid unnecessary tax implications. For a resident person, all their income including foreign income is taxable in India whereas for a non-resident only the income that is accruing, arising or deemed to be arising in India is taxable.
What is the importance of avoiding mistakes while filing Income Tax Returns?
Income tax returns should be filed very cautiously to avoid any unnecessary scrutiny from the Income tax department. You might end up getting penalized or receiving notice from the Income tax department. The department can also render the return as defective.
Avoiding these mistakes will ensure that you have fulfilled all legal obligations and ensure regulatory compliances. An accurate ITR acts as a verification tool for the authorities to validate your financial history and integrity, making it essential for loan applications, visa processes, and more.