Income Tax Return is the tax form used by taxpayers to file information about the income they have earned and the applicable tax with the Income Tax Department. Often, taxpayers receive unnecessary tax notices, which add stress and burden. As taxpayers have started filing returns for FY 2022-23, they need to be alert about inadvertent mistakes to avoid notices from the Income Tax Department. This article will focus on the red flags that require attention while filing an income tax return and avoiding tax notices for discrepancies.

ITR filing guide

1. Selection of Wrong ITR Forms: Taxpayers need to check the eligibility criteria and identify the correct income tax return form applicable to them based on their income source. Filing a wrong income tax return form can result in the ITR being treated as a defective return under section 139(9).

2. Non-payment of Additional Tax on Interest: Often, taxpayers mistakenly believe that TDS deducted by the bank at a rate of 10% exempts them from paying tax. However, if taxpayers fall in a higher tax slab, such as the 20% or 30% tax bracket, they need to pay additional tax on interest.

3. 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 10,000 is exempt, it still needs to be reported. Taxpayers often miss reporting interest income in their returns.

4. Mismatch of Income in Form 26AS, AIS, TDS Certificates, and ITR: Taxpayers may fail to reconcile their incomes, causing a difference between the reported income and actual income.

5. Non-filing of Return when TDS Deducted: If TDS has been deducted under any section, it is imperative to file a return to claim a refund or adjust tax liability. TDS deducted under PAN can be tracked through Form 26AS or the AIS app.

6. Non-reporting of Bank Accounts: Reporting all bank accounts in which the taxpayer is a beneficiary or has signing authority, except dormant accounts, is required in the income tax return. The department tracks taxpayers’ transactions through the Annual Information System.

7. Non-disclosure of Exempt Income: All income should be accounted for while filing an income tax return, such as interest earned from PPF or tax-free bonds, interest from a post office savings account, agricultural income, etc.

8. Non-reporting of Rollback of Tax Benefits: It might happen that any tax benefit claimed in previous financial years may be rolled back in the current financial year. For example, if a deduction is claimed under section 80C for the purchase or construction of a house property in earlier years, but the property is sold before a period of 5 years, the earlier claimed benefit needs to be reversed and reported in the ITR, requiring payment of tax.

9. Non-verification of ITR: This is the last step after filing an income tax return and should be done within 120 days. Failure to verify the ITR within the specified time treats the return as invalid. There are alternatives to verify ITR, such as using Aadhaar OTP, EVC, net banking, or sending the ITR-V to the CPC.

10. Clubbing of Income: Taxpayers often make transactions that may attract clubbing provisions. A taxpayer is required to include the income of all specific persons related to the taxpayer’s investment and income, such as non-disclosure of investments made in the name of a spouse.

11. Selection of Wrong Assessment Year: Taxpayers need to understand the year for which they are filing the ITR. The financial year in which income is earned is the previous year, and the year in which tax is paid on such income is the assessment year. In the current scenario, the financial year is 2022-23, and the assessment year is 2023-24.

12. Non-disclosure of Capital Gains/Losses: Any gains or losses from the share market need to be disclosed in the ITR, as the department tracks transactions through AIS. Filing ITR in the case of a capital loss allows carrying it forward for 8 years.

13. Schedule of Assets and Liability: Assessees (individuals and HUFs) whose total income exceeds Rs 50 lakhs, even if they are not carrying on any business or profession, are required to file Schedule AL, disclosing assets and liabilities in their returns.

14. Non-reporting of Income from Previous Employer: If a taxpayer changed jobs during the financial year, both employers may have provided benefits under Section 80C and other benefits. Ignoring the income from the previous employer will result in lower tax liability and may be detected by the department by tracing the TDS deposited by the previous employer.

15. Disclosure of Agricultural Income: If agricultural income exceeds Rs 5 lakhs, details such as the place where the land is situated, PIN code, acres of land, and whether the land is leased or owned, irrigated or rain-fed, need to be furnished.

16. Joint Ownership of Property/Bank Account: Details of co-owners and their respective shares should be disclosed, along with the PAN/Aadhaar of the co-owners.

17. Details of Buyer: In the case of the sale of immovable property and subsequent capital gains, details of the buyer, such as their name, PAN/Aadhaar, and PIN code, need to be provided.

18. Issue with Bank Account: The bank account needs to be pre-validated to receive a refund. Correct details, such as the account number and IFSC code, need to be provided.

19. Erroneous Claim under Section 80TTA: Taxpayers mistakenly claim 80TTA against interest from fixed deposits or recurring deposits. However, the deduction is allowed only for interest received from savings accounts.

20. Wrong Filing of Form 10E: Form 10E is filed for an advance or arrear payment in the nature of salary/pension. Taxpayers often make mistakes by manually filing the amount of Form 10E in the ITR. The assessee needs to file and e-verify Form 10E before filing the ITR.

21. Claiming HRA and Deduction under 80GG Both: Claiming both HRA exemption and deduction under Section 80GG for rent paid is not allowed. If an employee receives HRA from the employer, exemption is received under Section 10(13A). However, if HRA is not received from the employer and rent is paid for any accommodation, deduction can be claimed under Section 80GG.

22. Non-filing of Form 10IE: Form 10IE must be filed before filing an income tax return if the assessee opts for the new regime.

Conclusion: Income tax return filing is a tedious process, and receiving tax notices can be burdensome, unnecessarily prolonging an already cumbersome process. Since the Income Tax Department relies more on technology, all taxpayers are under continuous surveillance. Taxpayers need to be extra careful to avoid tax notices. It is mandatory to file an income tax return if your income exceeds Rs 2.5 lakhs before claiming deductions from sections 80C to 80U. Don’t wait for the due dates for filing ITR and avoid last-minute rush.

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