Filing Income Tax Returns - Common Mistakes to Avoid

The due date for filing tax returns for individual taxpayers is 31st July of the assessment year. Putting it off until the last minute and filing it in a hurry can lead the taxpayer to disclose incorrect information, which might hurt the outcome of the return filing. Returns can either be filed manually or can be filed online. E-filing of a tax return is mandatory from FY 2016-17 onwards if you have a refund claim in the return or have a total income of more than Rs.2,50,000. However, this limit is increased to Rs.3,00,000 under the new tax regime. We have listed below some of the most common mistakes taxpayers make at the time of filing tax returns:

1. Selecting the Incorrect Form

Selecting the appropriate ITR form for filing returns is of utmost importance. Please do so to ensure the income tax department processes your return. The selection of the ITR form is based on the nature of income or the category to which the taxpayer belongs. In case a taxpayer has filed an incorrect return form, he is most likely to receive a defect notice from the department which must be rectified within the specified time limit. Example: If you are a salaried individual with income below Rs.50 lakh and with no capital gains income, the appropriate form for you is ITR-1, while it is ITR-3 if you are an individual having income from a business or profession. To know more about the different ITR Forms and which ITR you must file, visit the Cleartax portal. Using an e-filing platform like Cleartax, you do not have to worry about choosing the correct form, as the software does this automatically.

2. Quoting the Wrong Assessment Year

While filing the returns, one must ensure that the correct AY is provided. For FY 2023-24, the correct corresponding AY is 2024-25. Mentioning the wrong AY increases the chances of double taxation and attracts unnecessary penalties.

3. Furnishing Incorrect Personal Information

Personal details, viz name, address, mail ID, phone number, PAN, date of birth, etc., must be accurately mentioned in the return of income. You need to ensure that the details match those given in your PAN. Further, if you are looking at claiming a refund, make sure your bank particulars to which you intend your refund to be credited, like account number, IFSC code, etc., are accurately mentioned in order to receive your refund on time and without hassles.

4. Not Disclosing All the Sources of Income

If there is any income from any source other than the primary source of income, it must be disclosed. Taxpayers have to disclose income from all sources including savings account interest, fixed deposit interest, rental income from house property, income from short-term capital gains and any other source. The income must be disclosed irrespective of being taxable or exempt. Many taxpayers, out of ignorance, tend to miss out on giving details of exempt income. Example: Although long term capital gains are exempt from tax up to Rs.1 lakh in case of equity shares or equity-oriented mutual funds, the details of the gains have to be mentioned in the schedule applicable for capital gains mandatorily. Not doing so may be questioned by the tax authorities.

5. Entering the Correct Details Manually

The ITR forms carry several rows and columns that need to be filled out at the time of filing one’s income tax returns. The details have to be entered in a particular format, which if not done correctly can lead to errors in the returns. For example, dates must only be entered in the DD/MM/YYYY format. If the date is entered in any other format, the returns would be incorrect.

6. Failure to Reconcile Income and TDS With Form 26AS 

It is important to check Form 26AS and AIS before filing the ITR. Form 26AS includes details of Tax Deducted at Source (TDS), Tax Collected at Source(TCS), High-value investments made, advance tax, self-assessment tax, etc. Your employer may have deducted taxes at source on your salary. A salaried person must cross-verify the details with Form 16 issued by the employer with Form 26AS. In cases where the TDS is not reflected in your Form 26AS, you will not get a credit for tax deductions not mentioned in Form 26AS. The taxpayer must ensure that the information in Form 26AS is up-to-date and correct. Mismatches as between your Form 26AS and Form 16 or TDS certificates may lead to less refund or more taxes payable.

7. Failure to Reconcile Income and Investments With AIS and TIS

AIS(Annual Information Statement) is an extension of Form 26AS consisting of more comprehensive details like GST turnover, purchase and sale of securities, foreign remittances, etc. TIS(Taxpayer Information Summary) consists of aggregated information and summary details of the taxpayer. The reported value, as shown in TIS is the value reported by various reporting entities like banks concerning the assessee. The derived value is the updated value after considering the assessee’s feedback. This value will be prefilled in the ITR. It is crucial to make sure that this derived value is the actual value of the Income and Investment of the taxpayer.

8. Form 16 from Two or More Employers

Whenever a taxpayer changes jobs, they end up with different Form 16s from each employer when filing their tax returns. Filing returns with multiple Form 16s can be tricky, and taxpayers are often not sure how to do it. In such cases, taxpayers have to aggregate their incomes from both employers under their income from salary.

9. HRA not Given by Employer

If an individual doesn’t submit the rent receipts with the company HR, he or she won’t be able to get house rent allowance. Often, taxpayers are not aware that they need to have their landlord’s PAN to avail the HRA benefit. Taxpayers can calculate and claim HRA exemption at the time of filing their income tax returns.

10. Non Availing of the Available Deductions

Certain deductions are available to taxpayers regarding income, expenditures, and donations. These deductions help taxpayers reduce their tax liability by reducing their total tax liability. However, figuring out how much can be claimed from what source is tricky. The  Cleartax portal helps taxpayers claim the correct amount of deductions.

11. Not Paying Advance Tax

Paying your taxes within due dates is always advisable to avoid paying interest and penalties. Advance Taxes should be paid in four installments: June 15th, September 15th, December 15th, and March 15th. Non-payment or short payment of advance tax attracts interest @ 1% on the unpaid amount until such shortfall exists. 

12. Interest on NSC is not Tax-Free

The interest on NSC is fully taxable. However, this interest can be claimed as a deduction under Section 80C for all the years (except in the last year, it is taxable under the slab rate). However, you must make it a point to mention this income as ‘income from other sources’ to get the benefits of Section 80C. Otherwise, you may have to end up paying taxes for it.

13. Failure to E-Verify ITR On Time

After successfully e-filing your income tax return, e-verify your ITR via Netbanking, Aadhaar Card, or the EVC process on your mobile number and email within 30 days of the e-filing of a tax return. For some reason, if you cannot e-verify your return, you can sign and send the ITR-V to the CPC via ordinary or speed post only within 30 days of the e-filing of a tax return.

14. Ignoring Notices and Communication From the Tax Department

Prompt Response: If you receive any notice from the Income Tax Department, respond promptly. Ignoring notices can lead to penalties or legal action.

Corrective Actions: Take necessary corrective actions if there are discrepancies or additional taxes to be paid.

15. Not Disclosing Schedule AL

If the net income exceeds Rs.50 lakh, you must file Schedule AL. This Schedule is to be filled by individuals and HUFs giving details of properties held by the assessee and the corresponding liabilities.

16. Not Disclosing Foreign Assets & Liability Details 

As per the Income Tax Act of 1961, residents and ordinarily resident Indians should report their foreign income, assets, accounts, and shares in the schedule FA in ITR in a given format, irrespective of whether the income is taxable in India or not.

Schedule Foreign Assets (FA) is a schedule in the ITR wherein you are required to furnish the details of foreign assets, such as foreign shares, foreign company mutual funds, and directly employee stock options (ESOPs) of foreign companies.