Income tax return is the tax form which is used by the tax payers to file the information about the income they have earned and the tax applicable with the Income tax department. Often the taxpayers get unnecessary tax notices which further bring out unwanted stress and burden on taxpayers. This article shall focus on the red flags that mandate attention of taxpayers while filing income tax return and avoiding tax notices from department for the discrepancies made in the income tax returns.

  • Selection Of Wrong ITR Forms: The taxpayers need to identify the correct income tax return form which is applicable to them based on their income source as filing a wrong income tax return form shall result in ITR being treated as defective return under section 139(9).
  • Non Payment Of Additional Tax On Interest: Often taxpayer’s notion is that TDS has been deducted by bank at the rate of 10% so he/she is not required to pay tax however the view point of taxpayer is wrong because if the taxpayers falls in a higher tax slab i.e. 20% or 30% tax bracket, then he needs to pay additional tax on interest.
  • Non Disclosure Of Interest Income: Taxpayers may have earned interest from National saving certificates (NSC), Bank fixed deposits, recurring deposits or savings bank accounts. Even if savings interest up to Rs 10000/- is exempt yet it needs to be reported. Taxpayers often miss out to report interest income received or accrued to them in income tax returns.

Tax Return written on notebook book with laptop coffee & wooden background

  • Mismatch of Income in Form 26AS, TDS Certificates and ITR: The taxpayer may not reconcile the incomes which may cause difference between reported income and actual income.
  • Relevant Mandatory Disclosures: Every assessment year ITR forms require certain mandatory disclosures. For e.g. The ITR forms for AY 20-21 aim at capturing high value transactions (cash deposit, foreign travel, electricity consumption).
  • Non Reporting Of Bank Accounts: Reporting of all bank accounts in which tax payer is beneficiary or has signing authority except dormant accounts is required in income tax return.
  • Non-Disclosure of Exempt Income: All the income should be accounted for while filing income tax return such as interest earned from PPF or tax free bonds ,interest from post office savings account, agricultural income etc.
  • Non-Reporting Of Roll Back Of Tax Benefits: It might happen that any tax benefit claimed in previous financial years may rollback in current financial year. For e.g. If deduction is claimed under section 80C for purchase or construction of house property in earlier previous years but such house property is sold before a period of 5 years then such benefit claimed earlier need to be reversed and reported in ITR and requires payment of tax.
  • Non-Verification Of ITR: This is the last step after filing income tax return which is to be done within 120 days of filing return; otherwise the return is treated as an invalid return. There are alternatives to verify ITR which are verifying the ITR electronically using Aadhaar OTP, EVC or net banking or sending the ITR-V to the CPC.
  • Clubbing Of Income: Taxpayers often make certain transactions which may attract clubbing provisions. A taxpayer is required to club income of all the specific persons which relates to the investment and income of the taxpayer. For e.g. Non disclosure of investments made in the name of spouse.
  • Selection of Wrong Assessment Year: Taxpayers need to have clarity about the year for which they are filing ITR. The financial year in which income is earned is previous year and the year in which tax is paid on such income earned is assessment year. In current scenario the financial year is 2019-20 and assessment year is 2020-2021.
  • Schedule of Assets And Liability: The assesses (Individuals and HUF’S) whose total income exceeds Rs 50 lakhs even if are not carrying on any business or profession are required to file schedule AL disclosing assets and liabilities in the returns.
  • Non-Reporting of Income from Previous Employer: If a taxpayer has changed jobs during the financial year both employers may have given the taxpayer benefits under Section 80C and other benefits. If he ignores the income from his previous employer he would have a lower tax liability and would be detected by the department by tracing the TDS deposited by the previous employer.
  • Disclosure Of Agricultural Income: If such income exceeds 5 lakhs, details are required to be furnished such as place where such land is situated, PIN CODE, Acres of land and whether land is leased or owned, irrigated or rain fed.
  • Joint Owner of Property/Bank Account: The details of co-owners, their respective shares should be disclosed, PAN/AADHAAR of the co-owners.
  • Details of Buyer: In case of sale of immovable property and subsequent capital gains details of buyer are to given I.e. name of buyer, PAN/ AADHAAR of the buyer or buyers, PIN code.

Conclusion: Income tax return filing is a tedious process and getting tax notices can be burdensome unnecessarily lengthening an already cumbersome process. Since Income tax department has levered more on technology all the taxpayers are under continuous surveillance, taxpayers need to be extra careful to avoid tax notices.

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18 Comments

  1. Arvin R Shah says:

    If int on loan of house property is claimed u/s 80C is sold before completion of 5 years according u interest claimed becomes taxable.But where to show in the return and under which head.

  2. MOHAN SARUP SACHDEV says:

    NICE OF U TO HAVE GIVEN EDUCATIVE INFORMATION. KINDLY LET ME KNOW IF SAVING BANK ACCT INTEREST FROM POST OFFICE IS TAXABLE .IF EXEMPTED THEN UP TO WHICH AMOUNT. IF SO WHETHER TO BE SHOWN IN EXEMPT COLUMN .THANK U

  3. Ravi Dutt says:

    Hello, Thanks for such a nice article. Is it necessary to mention all those Bank Accounts also in which one is a second or third Joint holder on either or survivor basis?I understood that only first holder is regarded as real owner of the Account

    1. Supriya dewan says:

      If the gift is received from relative or on occasion of marriage, it is not required to be disclosed in ITR as it does not fall under Income chargeable to tax as per section 56(2)(X). However, if you get a property through a registered gift deed where you have quoted your PAN, you can show the value of the gift received as ‘Exempted Income‘ in ITR.

  4. S Govindaswamy says:

    I am 88 years old. My Gross income is more than Rs 5 Lakhs. After 80TTB deduction it is less than Rs 5 Lakhs. Hence I have not to pay any tax. Should I file a IT Return.
    MF Dividend is not taxable. Why is it not shown in Sch E1 of ITR 2 for A.Y 2020-21

    1. Supriya dewan says:

      Since your gross total income exceeds 5 lacs you are required to file your ITR. Only then you’ll be eligible to claim deduction U/S 80TTB.

  5. Narayanan says:

    Hello. I am a senior citizen aged 62. My self-assessment tax works out to more than Rs 1 lakh for Ay 2020-21 as of 1 Jul. Itr2 does not work out any interest. Do we have to calculate the interest and pay? Thanks in advance for your guidance.

  6. Shashikant Mundle says:

    We may also add interest received in case of Refund Orders as part of other income.
    This sometimes may be missed out.

    1. supriya dewan says:

      I wrote it in particular for interest from savings account for which it is 10000 as per Section 80TTA. Yes the limit has been enhanced to 50000/- for senior citizens by introducing Section 80TTB which includes interest on all deposits i.e interest on savings account, interest from fixed deposits or interest on deposits in a co-operative bank or a post office.

    2. Supriya dewan says:

      I wrote it in particular for savings account interest as per Section 80TTA for which is Rs 10000/-. Yes, the limit has been enhanced to Rs 50,000/- for senior citizens but includes interest on all deposits whether savings or fixed or whether interest on deposit in a cooperative bank or post office.

  7. Deepak says:

    Nice article. I wonder one thing though. The IT form requires disclosure of all bank accounts and exempt income too. But does the Act (or the Rules) require such disclosure? IMO, if the Act or the Rules do not make it mandatory, there should be no compulsion on the taxpayer to disclose these details.

    1. Supriya dewan says:

      Hey thanks for reading. I agree with you that there isnt any provision in the act regarding the above disclosure. However back in 2015 CBDT mandated disclosure of all bank accounts through a notification. Also if there is any SFT in the non disclosed account then an asseseee may land in trouble.

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