20 Common Mistakes In Filing of Income Tax Returns

1. 20COMMONMISTAKESINFILINGOFINCOMETAX RETURNS AUTHOR:CAMRIDUL https://taxguru.in/income-tax/20-common-mistakes-filing-income-tax-returns.html Common20MistakesandErrorsinFiling/CompilationofIncomeTaxReturns ’31st July is the last date for filing the Income-tax returns. Please file the return on time to avoid the last- minuterush.’ Every taxpayer must have received such a message from the Income-tax department. Upon receiving such a message, we simply start to gather our various documents required for return filings such as Form 16, Capital Gains Statements, Form 26AS, Interest Certificates, and many more documents. Unfortunately, in the rushofgettingthesekeydocumentsinorder,manyofusmisssmalldetailsthatcanderailtheentireprocess ofIncome Tax Return filing. Herewehaveprovidedalistof20suchcommonmistakesthatcanbeavoidedforsmoothtaxreturnfiling. FailingtoFileI-TReturn If your income exceeds Rs 2.5 lakh, you need to file an Income Tax Return. Remember that this income is calculatedbefore accounting for all thedeductions. IncorrectPersonalDetailsincludingBankDetails Providing incorrect personal details in your ITR can create several issues like this. It may lead to verification issues. Income Tax Department transfers all income tax refunds directly to the bank account. Therefore, always share correct bank account details for the income tax return of an active account. Also, need to ensure that the bank accountis prevalidatedas the refundis issuedonly in theprevalidated bankaccounts only. Notreportingallbankaccounts A taxpayer is required to report all the bank accounts held by him in the previous year. However, your dormant accountscould be leftout. Even allthe joint accountsare required to bereported. Failingtoreportincomefromthelastjob Ifyouhaveswitchedjobsinafinancialyearthenincomefromyourpreviousjobmustbereportedwhilefiling anincome tax return alongwith income from the currentjob.

2. Non-DisclosureofForeignAssetsandIncome It is mandatory for all ordinary resident taxpayers to disclose correct details of their foreign assets and income outsideIndia in their income tax returns Non-DisclosureofLossesbeing/tobecarriedforward In order to carry forward certain losses incurred during the year to set off against income in future years, it is mandatoryto file one’s incometax return on orbefore the due date. The income tax returns provide for different schedules depending upon the type of the asset. One needs to ensure toreportthe correctasset classaccording tothe periodof holdingand otherapplicable provisions. InterestearnedonNSCistax-free IfyouthinkthattheinterestearnedonNationalSavingsCertificate(NSC)istax-free,youarewrong.The interest is fully taxable. Although this interest can be claimed as a deduction under Section 80C for all the years (except the last year), you must make it a point to mention this income as ‘income from other sources’ to get the benefitsof Section 80C.Otherwise, you mayhave to end uppaying taxes forit. NotreconcilingincomewithForm26AS/AIS It is of utmost importance to reconcile and disclose income in your tax returns in synchronization with income reflected in Form 26AS. The scope of AIS (earlier, 26AS) has been widened drastically so as to report more and moreinformation in possession ofthe department to thetaxpayers. Taxpayers must check the AIS before filing the income tax return. It can act as a cross-check measure while filing income tax returns. It contains many high-value transactions carried out by the taxpayers, a few income details, TDS, TCS, Income Tax refund, etc details. In case of any discrepancy, the same should be intimated to thedeductor/department and get the samerectified. Non-Verificationofe-filedITR Most taxpayers are required to file their income tax returns electronically. However, only furnishing the return electronically is not enough and you are also required to verify the return so that your identity is authenticated. The same can be done either by posting the ITR-V to CPC, Bangalore, or via any of the e-verification modes available. Non-DisclosureofExemptIncome Taxpayers need to be more cautious so as to incorporate all income, even exempt income,in the ITR forms. Exempt income like LTCG on shares up to Rs. 1 Lakh, LIC Money back/Maturity, PPF Interest, Agricultural income, etc are ignored by taxpayers for the reason that it is tax neutral. However, reporting serves a dual purpose; it not only provides correct information in the ITR but also provides evidence in support of subsequent investmentsby thetaxpayers which resultin avoidance ofnotice by thedepartment. It may be noted that Dividend Income is no more exempt and has been made taxable from FY 2020-21. Accordingly,thesame shouldbe includedin thetaxable incomewhilefiling theIncome-tax return. Non–ReportingofSavingBankInterestandInterestearnedonFixedDeposit.

3. WhileinterestincomeuptoRs10,000fromsavingsaccountsisexempt,oneisrequiredtodisclosetheincome inITR form and thereafterclaim eligible deduction u/s80TTA. Beware, one is required to pay tax on interest income earned from fixed deposits (other than Senior Citizen up to Rs. 50,000). No exemption of Rs. 10,000 , as in the case of Saving Bank Interest, is available in this case. However, taxpayers who are not aware of this rule, exclude fixed deposit interest from their taxable income, whichshould never be done. Also,PeopleusuallyhaveamisconceptionthatanFDistaxableonlywhenitismatured,however,the information about the interest income needs to be reported every year to the ITD under the head ‘Income from othersources’. Taxoncertainnotionalincome Taxpayersneedtoreportnotonlyactualincomefortaxationbutalsonotionalincome, Forinstance: Deemedrentalincomeiftaxpayersownmorethantwohouseproperties,(Ifanindividualownsmultiple house properties, then any two of his house property will be considered as self-occupied, as per their choiceand the remainingwill be consideredas ‘ deemed tobe let out’) GiftiftheamountexceedsRs.50,000/-isreceivedfromunspecifiedrelatives, Purchaseorsaleofthepropertybelowitsstampdutyvaluation,etc. FDRInterestexemption,inthecaseofSeniorcitizens,isPANWise For a senior citizen, Interest income up to Rs 50,000 from savings accounts as well as FDR accounts is exempt; however,the limit is tobe checked PAN-wise andnot bank-wise. Choosingthewrongtaxreturnformandcorrectassessmentyear The Income Tax Department has issued 7 types of income tax return (ITR) forms, and the selection of an ITR formfor fillingtax return dependsupon the typeof income andstatus of thetaxpayer. Whilefilingthereturns,onemustmakeensuretoprovidethecorrectAY.ForFY2021-22thecorrect corresponding AY is 2022-23. Mentioning the wrong AY increases the chances of double taxation and attracts unnecessarypenalties. Notreportinginterestreceivedonincometaxrefunds Interest received on Income Tax refunds can be traced from Form 26AS and should be reported as income from othersources while filing your IncomeTax Return. NotclubbingMinorChildIncomes AccordingtotheIncomeTaxAct,therearecertaininstanceswherethetaxpayerisrequiredtoclubtheincome of his minor child or spouse with his own income and pay taxes accordingly. However, an exemption of Rs.1500 isgiven by the income taxdepartment to each child. Notreportingcapitalgainsonswitchingofmutualfunds

4. These transactions are not reflected in the bank statements and so do not find a mention in the Income-tax return. The profits earned on such transfers are left unreported as they are not routed through the bank account of the taxpayer. As switching or shifting from a particular scheme to another may result in profit or loss, therefore it shouldbe reported in the IncomeTax Return. Notclaimingcorrectdeductions Somedonationsare100%allowedbutothersareonly50%allowed.Samelikecertainreturnsoninvestmentsare tax-free while others are taxable. Hence such deduction should be claimed with caution to avoid scrutiny from theincome tax department. Assets/LiabilitiesStatement A person with an annual income of more than Rs. 50 Lakh are required to show the assets/liabilities statement in theincometaxreturninScheduleALS.TaxpayersshouldbecarefulwhilefilingsuchITRwithScheduleALS. NotFilingRevisedReturn After filing your tax, if you discover some error, then it is necessary to rectify your mistake and file the revised return.It is permissibleand can safeguard youfrom problems downthe road. BottomLine You can use this list of the 20 most common mistakes that tax filers make as a checklist of things that you must avoid. Doing so will help ensure that the tax authorities accept your ITR. That way, you do not have to worry aboutreceiving an incometax notice orpaying fines andpenal interest charges. Disclaimer: The above compilation is for guidance and educational purpose only. You are requested to consultthe income taxpractitioner before finalizingthe Income-tax returns. Author:CA Mridul Gupta, MRIDUL GUPTA & CO, Chartered Accountant in Practice from Delhi and canbe contacted at office@camridul.in).