Tax filing is a crucial and mandatory activity for every taxpayer in India. However, it is also a complex and tedious process that requires careful attention and accuracy. Many taxpayers make common tax mistakes while filing their income tax returns (ITRs) that can lead to penalties, notices, or even prosecution by the Income Tax Department. Therefore, it is important to avoid these tax mistakes and file your ITR correctly and timely.
Here are some of the common mistakes on tax returns that you should watch out for and how to avoid them:
Choosing the wrong ITR form
The Income Tax Department has prescribed different ITR forms for different categories of taxpayers based on their individual income sources, residential status, and other criteria. You should choose the correct ITR form that matches your profile and income details. Choosing the wrong ITR form can result in your return being treated as defective and invalid. You can check the eligibility and applicability of each ITR form on the official website of the Income Tax Department or consult a tax expert to help you choose the right one.
Here are the various types of ITR forms and their respective purposes:
- ITR-1 (SAHAJ): Designed for individuals with income from salaries, one house property, other sources (such as interest), and agricultural income up to Rs 5,000.
- ITR-2: Intended for individuals and HUFs without income from profits & gains of business/ profession.
- ITR-3: Applicable to individuals and HUFs with income from profits & gains of business/ profession.
- ITR-4 (SUGAM): Tailored for presumptive income from business and profession.
- ITR-5: Suitable for entities other than individuals, HUFs, companies, and those filing Form ITR-7.
- ITR-6: Specifically designed for companies that do not claim exemption under section 11.
- ITR-7: Required for individuals and companies mandated to furnish returns under sections 139(4A), 139(4B), 139(4C), 139(4D), 139(4E), or 139(4F).
Selecting the wrong assessment year
The assessment year (AY) is the year in which your income from the previous year is assessed and taxed.
For example, for the income earned in the financial year (FY) 2022-23, the AY is 2023-24. You should select the correct AY while filing your ITR; otherwise, your return may be rejected or processed incorrectly. You can check the AY on the top of the ITR form or on the e-filing portal of the Income Tax Department.
Not reporting all income sources
You should report all your income sources, whether they are taxable or exempt while filing your ITR. This includes salary, interest, dividends, capital gains, rental income, business income, agricultural income, etc. You should also report any foreign income or assets if you are a resident and ordinarily resident (ROR) in India.
Not reporting all income sources can lead to a mismatch with your Form 26AS or Annual Information Statement (AIS), which are the documents that show the details of your income and taxes deducted or collected at source. This can result in tax notices or demands from the Income Tax Department.
Not claiming all deductions and exemptions
You can reduce your taxable income and tax liability by claiming various deductions and exemptions under the Income Tax Act of 1961. These include deductions under Chapter VI-A (such as Section 80C, Section 80D, Section 80E, etc.), exemptions under Section 10 (such as HRA, LTA, etc.), and tax breaks on home loan interest, donations, etc. You should claim all the deductions and exemptions that you are eligible for and have the relevant proof and documents to support them. Not claiming all deductions and exemptions can result in paying higher taxes than you should.
Not verifying your ITR
After filing your ITR, you should verify it within 120 days; otherwise, it will not be processed by the Income Tax Department. You can verify your ITR online through various modes, such as net banking, Aadhaar OTP, EVC, etc., or offline by sending a signed ITR-V to the CPC- Centralized Processing Center in Bengaluru. You should verify your ITR as soon as possible to avoid any delay or rejection of your return.
Not revising your ITR
If you have made any mistake or omission in your original ITR, you can revise it before the end of the relevant assessment year/ before the completion of the assessment, whichever is earlier. You can revise your ITR online by selecting the option of “Revised Return” and mentioning the details of your original ITR. You should revise your ITR as soon as you discover any error or discrepancy to avoid any penalty or notice from the Income Tax Department.
Not filing your ITR
The most common and costly tax mistake is not filing your ITR at all. You should file your ITR before the due date, which is July 31 for most taxpayers, unless extended by the government. If you miss the due date, you can still file a belated ITR before the end of the relevant assessment year, but you will have to pay a late fee of up to Rs 10,000. If you do not file your ITR at all, you will face several consequences, such as interest, penalty, prosecution, loss of carry forward losses, etc. Therefore, you should file your ITR on time and avoid any hassle or trouble later.
Avoiding Tax Mistakes: 5 Things to Keep in Mind
- Choose the Right Form: Select the correct income tax form based on your income sources to prevent errors in your return.
- Meet Filing Deadlines: File your tax return on time to avoid penalties and ensure a smooth tax filing process.
- Verify Personal Details: Ensure accurate PAN, Aadhaar, and other personal information to prevent return rejection and delays.
- Disclose All Income: Report all income sources, both taxable and exempt, to avoid scrutiny and penalties.
- Claim Eligible Deductions: Verify your eligibility before claiming deductions to prevent issues with tax authorities.
These are some common tax mistakes you should avoid while filing your ITR in India. By following these tips, you can file your ITR correctly and timely, and stay compliant with the tax laws. You can also use online tools and platforms to help you file your ITR easily and accurately. You can also consult a tax expert to guide you through the process and resolve any doubts or queries.
Frequently Asked Questions (FAQs)
Yes, you can file a revised return to correct errors within a specified time frame. File it online using the same portal and form as the original return before the end of the assessment year or assessment completion, whichever is earlier.
Missing the deadline can lead to penalties, interest, and late fees. The due date is typically July 31, but it can be extended. Late filing results in a late fee of up to Rs. 10,000, depending on your income, along with interest on unpaid taxes.
Yes, you can claim deductions under both Section 80C (for investments) and Section 80D (for health insurance premiums) if you meet eligibility criteria. Section 80C allows a deduction of up to Rs. 1.5 lakh, while Section 80D permits deductions for health insurance premiums.
To ensure a valid digital signature for e-filing, register and renew it on the income tax portal. Follow the steps provided on the [link]. Verify your digital signature certificate details before uploading your return.
Underreporting income can lead to penalties, interest, and legal consequences. The penalty for underreported income is 50% of the tax payable on underreported income. You may also face prosecution or imprisonment for willful tax evasion.
Yes, you can claim both home loan interest deductions and House Rent Allowance (HRA) exemptions if you meet eligibility criteria. Home loan interest deductions are under section 24(b), while HRA exemption depends on salary, rent paid, and residence location.
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