With the time, Annual Filing of your Income Tax Return (ITR) is not remained a task of copying figures from your Form 16 and then submitting the same. Over the last few years, the Income Tax Department has put up the extensive usage of digital and technology infrastructure and has done rapid changes in IT architecture. The Online Efiling portal of the Income Tax Department has now integrated the systems through data analytics, automated cross-referencing, and extensive data reporting through third-parties.
To help in the process of ITR filling for this year, below are the 10 most costly mistakes to be avoided while the submission of the ITR to the Tax department
1. Selection of Incorrect ITR Form
While filling the ITR, the selection of ITR form is the first step in the process. It is highly important to make the correct selection of ITR form. The tax department provides different forms based on the sources of incomes and assets held by the taxpayers. So the ITR form should be selected keeping in mind the not only the sources of income but also other factors such as quantum of income, nature of business organisation type and also where the foreign assets are held or not, etc.
2. Do not Ignore the Annual Information Statement (AIS) and TIS
Earlier, there were days when checking your Form 26AS was enough. But now through the use of technology and data analytics, the tax department now tracks your financial footprint through the Annual Information Statement (AIS) and Taxpayer Information Summary (TIS). Any information which doesn’t match or concealed by Taxpayer while it is reflecting in the AIS or TIS then can lead to discrepancies and can be a chance of notice from the department.
3. Misconception regarding Interest Income from Savings Accounts and FDs
It is a very common misconception among taxpayers that interest earned on a regular savings bank account is tax-free as already tax is paid on that income or it is a negligible amount, or that interest on a fixed deposit does not need to be declared if the bank has already deducted Tax Deducted at Source (TDS) on such interest income. It is factually incorrect and can lead to mismatch of income as reported by the Bank to the Income Tax department and what you report in your Income Tax Return.
4. Calculation of Annual Salary in case of multiple Form 16s in case of job change
Where the person has job change during the year, it often leads to incorrect calculation of taxable salary as well tax liability. What happens is that in case of multiple jobs, the failure to report previous earned salary to the new employer, the new employer gives the benefit of tax-slab and calculates the salary earned through him and not the total salary including previous earned as well as current. The Tax is payable on annual salary and then the tax slab benefit can be earned once per individual. It is recommended that the previous earned salary should be shared with the new employer through Form 12B.
5. Skipping “Income from Other Sources” in total Income
Very often, taxpayers put their entire focus on their primary income from salary or income from business or profession or capital gains, while completely overlooking the other incomes such as interest income, dividends, etc that they have earned during the year.
6. Common Mistakes in Claiming House Rent Allowance (HRA) and Rent Deductions
The Tax department has cracked down on the fraudulent or erroneous claims for House Rent Allowance (HRA) or deductions under 80GG and has created disclosure requirements of PAN and other details as well as introducing Tax Deducted at Source (TDS) deduction on Rent payments exceeding INR 50000 per month. With the use of PAN linkages as well as other data analytics, the incorrect claims are highlighted and results in notice from the tax department on that. It is highly advisable to properly calculate the HRA deductions and claim correct eligible deductions.
7. Incorrect calculation of Capital Gains
There are chances of incorrect or miscalculation in the case of calculating the income from capital gains arising from the sale of stocks, mutual funds, or sale of commercial or residential properties. It is a complex process as various and different sections of Income Tax Act are applicable on such capital gains with different tax rates applicable. So if the taxpayer has any such capital gains, the calculations and deductions if claimed should be correctly calculated as per law and proper documentation should be maintained.
8. Non reporting of Exempt Income
It is a incorrect belief that any income which is exempt is not required to be reported in the Income Tax Return (ITR) for the year. Exempt Income such as agricultural income, PPF withdrawals or Life insurance payouts should be reported in the appropriate column of ITR. Non reporting of such exempt in the ITR creates a issue when the same is deployed in asset purchased or utilisation in other purposes as the same is not reported to the department.
9. Failure to E-Verify ITR within time limit
The process of uploading of ITR on the Efiling portal of Tax department is the completion of first stage of the process of ITR filing; it does not mean the process is completed. The ITR process is completed with the E-verification of the ITR uploaded. The ITR is not treated as filed legally until it is verified within the prescribed time limit. In case of failure to E-verify the uploaded ITR (via specified modes such as Aadhaar OTP, Net Banking, Digital Signatures or EVC), then ITR is treated as Inoperative which can lead to legal consequences under the law.
10. Failure to Pre-Validate Bank Account for Refunds
With the use of digital infrastructure, the Income Tax department issues refunds only through electronic or digital mode into the Bank account of the taxpayer directly and has stopped the practice of sending demand drafts through speed posts. The Bank account of the tax payer should be pre-validated on the e-filling portal of Income Tax department. The details should be clearly matched and there shouldn’t be any typo error or mismatched in the details. Any such mismatch in the Bank account details of IFSC code can lead to delayed in refunds.
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