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What are the common mistakes while filing ITR?

What are the common mistakes while Filing ITR

What are the common mistakes while Filing ITR?

The deadline for submitting Income Tax Returns for the fiscal year 2023-24 (Assessment Year 2024-25) is quickly approaching, with the due date set for July 31, 2023. Last-minute rush in filing can often result in the provision of inaccurate information, potentially leading to adverse effects on the return filing outcome. Errors in the income tax return submission can render the return void, possibly subjecting the individual to fines and legal action. Given the myriad of allowances, deductions, clauses, and regulations, it’s quite easy to feel overwhelmed by the complexities of Income Tax laws. Hence, we’ve compiled a list of some frequent mistakes taxpayers make. Our guide aims to highlight these common mistakes while filing ITR, offering advice to help you steer clear of them.

Income Tax Return (ITR)

An Income Tax Return (ITR) form that taxpayers must submit to the income tax authorities to report their annual earnings, taxes paid, deductions claimed, and other relevant financial information and it’s imperative to ensure accuracy to avoid mistakes while filing ITR. It’s a comprehensive declaration that outlines the taxpayer’s sources of income, including salaries, business profits, capital gains, and other forms of revenue, along with allowable deductions and exemptions under the tax laws. Filing an ITR is not only a statutory obligation for those whose income exceeds the basic exemption limit but also serves as a crucial document for financial verification purposes, aiding in loan approvals, visa applications, and more.

What are the common mistakes while filing ITR?

Here are some common mistakes that people often make while filing their ITR:

Filing Income Tax Returns (ITR) using an Incorrect Tax Form

Every taxpayer must disclose all taxable and tax-exempt income sources using the appropriate ITR form applicable to their circumstances. Filing the ITR with an incorrect form results in the return being labelled ‘defective.’ The taxpayer’s choice of the correct ITR form depends on the sources of income earned. Opting for the wrong form may render the return defective or entirely invalid. Hence, selecting the correct ITR form is crucial.

IndiaFilings experts are available to assist you in selecting the right form.

Mentioning Incorrect Personal or Correspondence Details

Taxpayers must exercise caution when furnishing their PAN, Aadhaar, and address details and ensure accuracy in email IDs and contact numbers. It is imperative to verify that these particulars align with the information in their PAN. Notably, the Income Tax Department communicates notices to the address listed in the last ITR. Failure to provide the correct address may result in the delivery of notices to an incorrect location.

  • Additionally, it’s crucial to recognize that the ITR-V will be dispatched to the email address specified in the ITR. Furthermore, reminders for E-Verification and intimation texts will be sent to the mobile number provided in the ITR.
  • Moreover, providing the correct Bank Account Number and IFS code is vital to expedite refunds from the Income Tax Department.

Not reporting interest income from savings bank accounts, Fixed deposits, etc.

Many taxpayers inadvertently overlook reporting interest income from savings bank accounts, fixed deposits, and similar sources under the ‘Income from other sources’ category in their tax filings. Notably, income from savings accounts becomes taxable when it exceeds Rs. 10,000 annually. Initially, the interest received must be disclosed under ‘Income from other sources,’ followed by the possibility of claiming deductions on savings account interest under section 80TTA for individuals below 60.

  • However, senior or super senior citizens can claim deductions up to Rs. 50,000 under section 80TTB from the total interest income earned in a financial year, including fixed deposit interest.
  • It’s essential to recognize that interest income from fixed deposits must be reported annually to the Income Tax Department under the ‘Income from other sources’ category, irrespective of maturity status. Taxpayers can track the interest credited to their accounts by referring to their fixed deposit statements.
  • Moreover, when Tax Deducted at Source (TDS) is deducted by the bank for interest credited, taxpayers can claim the same in their Income Tax Returns (ITR) upon its reflection in their Form-26AS statement. Taxpayers must remain vigilant about these details to ensure accurate tax filings.

Not Reporting Income from Multiple Employers in ITR

When filing Income Tax Returns (ITR), individuals who have changed jobs within the financial year must include earnings from their previous and current employment. Failing to report income from any job could result in inconsistencies between the Tax Deducted at Source (TDS) certificate and Form 26AS.  

Not Reconciling Form 26AS statement

Form 26AS serves as a comprehensive record of Tax Deducted at Source (TDS) and Tax Collected at Source (TCS), along with other tax payments made under an individual’s Permanent Account Number (PAN) throughout the financial year. It’s crucial to report all income reflected in Form 26AS since these details are already with the tax authorities. Discrepancies between Form 26AS and the reported income, such as with Form 16, can trigger a notice from the tax department or result in reduced tax refunds for the individual.

Not checking the Bank Statements

When preparing an income tax return, it’s essential to account for all sources of income accrued during the year. This includes thoroughly reviewing bank statements to identify any received gifts, interest earnings, or other types of income. Since tax forms necessitate the disclosure of all active bank accounts, it’s crucial to accurately report all income received to ensure compliance and avoid discrepancies.

Omitting Tax-Exempt Income

Under income tax regulations, taxpayers must declare all forms of income, including those that are tax-exempt, when filing their returns. This requirement applies even if the individual’s total gross income surpasses the basic exemption threshold of Rs. 2.5 lakh.

Neglecting Interest from Income Tax Refunds

Interest earnings on income tax refunds, which can be verified through Form 26AS, must be declared as income from other sources in your Income Tax Return. This oversight can lead to discrepancies in tax filings.

Failure to E-Verify ITR V

Completing the tax return process requires more than submitting your ITR; you must verify your return within 30 days. Failure to do so means the Income Tax Department will not process your return. Verification can be done offline by mailing the ITR V (Acknowledgement) to the Central Processing Centre in Bangalore or online via options like Aadhaar OTP or EVC. Many neglect this crucial step, marking their tax return as “Invalid” by the department.    

Overlooking Income Aggregation

The Income Tax Act mandates the aggregation of specific incomes, such as those of a minor child or a spouse, with the taxpayer’s income for taxation purposes. For instance, if a child under 18 earns an income, it should generally be added to the parent’s income. The tax department does provide a minor exemption of Rs. 1,500 per child. For example, the parent must declare interest income from a Fixed Deposit in a child’s name in their tax filings.  

Consequences of Delayed Income Tax Return Filing

 While filing after the designated due date is still possible, it has several disadvantages. First, the opportunity to carry forward losses to subsequent years is forfeited. Second, late filing incurs penalties and additional interest charges if taxes are owed. This delay also affects the timeline for receiving any tax refunds. It’s important to adhere to filing deadlines to avoid these repercussions.

Not keeping evidence of deductions claimed in income tax return

Maintaining documentation for deductions claimed under Chapter VIA of the Income Tax Act—such as for children’s tuition fees, life insurance, public provident fund contributions, medical insurance premiums, etc.—is crucial. Lacking proper evidence for these claims can lead to denying such deductions during a scrutiny assessment, increasing your tax obligation. It’s advisable to claim a deduction only if you have corresponding proof. 

Overlooking Tax Implications for Multiple Properties

Owning more than two properties introduces specific tax considerations. According to tax regulations, an individual can classify any two of their properties as self-occupied based on their preference. Any additional properties beyond these two are automatically deemed ‘let out’ for tax purposes, regardless of their rental status. If you own three properties and one remains vacant, it is still subject to taxation. The tax is calculated on the presumed rental income, reflecting the property’s potential earning capacity per the relevant legal provisions.  

Mandatory Filing for Foreign Assets

Even if your income falls below the taxable threshold, holding any overseas assets necessitates filing an income tax return. For example, studying abroad often requires opening a local bank account. It’s common for students to return to India and continue using their foreign accounts without closing them. In such cases, you can’t use the simpler ITR 1 form. Instead, you must opt for ITR 2, providing detailed information about these foreign bank accounts. 

Not Paying Adequate Advance Tax or Self-Assessment Tax

Taxpayers sometimes find themselves in higher tax brackets due to insufficient TDS deductions, particularly on interest income from banks, which might be deducted at a lower rate. In such scenarios, the additional tax payable should be computed and paid as advance tax.

Assess the tax liability and pay the requisite advance tax for rental income. Self-assessment tax is due when the return is filed, and details of all such payments must be accurately reported in the income tax return.

Overlooking Capital Gains from Mutual Fund Switching

Capital gains from switching mutual fund units often go unreported as these transactions don’t appear in bank statements. Whether these switches result in profit or loss, they should be disclosed in the Income Tax Return to avoid discrepancies.

Submitting Inaccurate Claims or Documentation

Submitting false invoices or receipts to claim deductions, like under Section 80C or 80D, or to claim House Rent Allowance can lead to serious repercussions. The Income Tax Department can easily verify such claims through bank transactions or direct inquiries, making honesty the best policy.

Failing to Link PAN with Bank Accounts

Linking your PAN with your bank accounts is crucial for the smooth processing of refunds. Ensure your bank details are accurate and updated on the income tax portal to facilitate refunds.

Neglecting to Submit Required Forms

Certain exemptions, like relief under Section 89(1) for salary arrears, necessitate submitting specific forms (e.g., Form 10E for tax relief on arrears) before filing your income tax return. Failure to submit these forms can lead to missed benefits and increased scrutiny.

Misjudging Residential Status

Incorrectly determining your residential status can lead to significant tax implications, affecting India’s taxable income scope. Ensure accurate assessment to include all relevant global incomes for residents or limit taxable income to Indian sources for non-residents.

Incorrect Deduction Claims

Be meticulous in claiming deductions; some donations qualify for a 100% deduction, while others may only be eligible for 50%. Similarly, understand which investment returns are tax-exempt and taxable to avoid unwanted attention from tax authorities.

Navigating Tax Slab Choices: Old vs. New Regime

When it comes to income tax filing, a critical decision for taxpayers is the selection between the old and new tax regimes, each characterized by distinct tax slabs and deduction opportunities. This choice necessitates thoroughly evaluating one’s financial landscape to ascertain the most beneficial option.

Old Tax Regime

  • Deductions and Exemptions: Offers a variety of deductions and exemptions, such as those under Section 80C for certain investments (e.g., ELSS, PPF, NSC), Section 80D for health insurance premiums, and many others that can significantly reduce taxable income.
  • Progressive Tax Slabs: These slabs feature progressive tax rates, meaning the tax rate increases as income rises across several income brackets. This allows for potentially lower taxes for those who can maximize deductions and exemptions.

New Tax Regime

  • Reduced Tax Rates: This regime generally has lower tax rates than the old regime, but it comes with a catch: It disallows most of the deductions and exemptions that could be claimed under the old regime.
  • Simplified Slabs: The new regime simplifies the tax slab structure with lower rates applicable across broader income bands, making tax computation more straightforward for those with minimal deductions under the old regime.

Choosing between these regimes depends on individual financial situations, such as the amount of deductible expenses one incurs in a year.  

Click here to learn more about AY 2024-25 Tax Filing: Old and New Tax Regimes

The Importance of avoiding mistakes while filing ITR  

Filing your Income Tax Return (ITR) with precision is paramount for a multitude of reasons, each contributing to a seamless and compliant tax filing experience:

Compliance with Tax Laws

  • Legal Obligation: Accurate filing is a direct adherence to the government’s tax laws and regulations. It’s a legal obligation that, when fulfilled correctly, prevents any non-compliance issues.
  • Regulatory Adherence: It ensures that you comply with the specific reporting requirements and deadlines mandated by tax authorities, safeguarding against regulatory breaches.

Avoidance of Penalties

  • Financial Implications: Errors or inaccuracies in your ITR can trigger penalties and fines, which can be substantial and impact your financial health.
  • Accuracy is Key: The tax authorities scrutinize returns for accuracy. Discrepancies can lead to penalties that increase your tax liability and may attract additional scrutiny.

Financial Documentation

  • Record of Income and Taxes: An ITR is a comprehensive record of your yearly income, tax payments, deductions, and investments, serving as a crucial financial document.
  • Verification Tool: This documentation helps in validating your financial history and integrity, making it essential for loan applications, visa processes, and more.

Maximizing Financial Benefits

  • Refunds and Deductions: Filing your ITR correctly ensures that you can claim all eligible refunds and tax deductions, optimizing your financial benefits and reducing overall tax liability.
  • Benefit Utilization: Mistakes can lead to missed opportunities for claiming deductions, affecting your finances negatively by paying more tax than necessary.

Legal and Financial Security

  • Avoiding Scrutiny: Accurate and timely filing minimizes the risk of audits and detailed scrutiny by tax authorities, offering peace of mind.
  • Legal Safeguard: It protects against potential legal challenges or prosecution related to tax evasion or fraud, ensuring legal and financial security.

In essence, meticulous ITR filing is not just about fulfilling a legal requirement; it’s about safeguarding your financial health, ensuring compliance, and avoiding any unnecessary penalties or legal complications. It underscores the significance of maintaining financial discipline and integrity in your tax-related matters.

In essence, meticulous ITR filing is not just about fulfilling a legal requirement; it’s about safeguarding your financial health, ensuring compliance, and avoiding any unnecessary penalties or legal complications arising from mistakes while filing ITR. It underscores the significance of maintaining financial discipline and integrity in your tax-related matters.

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