Due to lack of knowledge and fear that a mistake in income tax returns (ITR) may entail interest, penalty and even prosecution, people prefer to file their tax returns through professionals.
Due to lack of knowledge and fear that a mistake in income tax returns (ITR) may entail interest, penalty and even prosecution, people prefer to file their tax returns through professionals. However, with little attention, one can file returns themselves. Here is a list of things to keep in mind to avoid common mistakes that people make while filing returns.
No tax liability
Some live under a myth that if one has no tax liability for the year gone by, returns filing is not mandatory. However, over the years the format of the ITR has evolved and the forms available today provide for declaration of exempt income, foreign assets, foreign tax credits etc. In an attempt to bring more taxpayers under the tax net and zero in on areas where taxpayers pay less tax through under-reporting, return form is becoming a way to strengthen the arms of taxman with information, to detect black money and possible evasion.
In this direction, linking Aadhaar card and bank account with PAN will help the government check on scrupulous entities having more than one PAN. Hence, if one holds any assets outside India either in individual capacity or in his capacity as beneficial owner, then the law requires him to file tax return even if his total income is below taxable limit. ITR is also required to be filed for claiming refunds, carrying forward of losses and bringing on record the income earned during the year.
Incorrect personal details
Every year a large number of returns are rejected for incorrect personal details. One should make sure that a valid and functional email ID is provided in the form. If one is staying in a rental accommodation or hostel, it is advisable to provide the permanent address. One has to be careful about TAN of the employer, which is mentioned in the Form 16. If one is expecting a tax refund, mention the bank details correctly, else the refund may get delayed unnecessarily.
Failure to include certain income
There are certain incomes which are left out erroneously. Income from equity and mutual funds is one of them. Even though long-term capital gains and dividends from equity mutual funds and listed securities are not taxable, they form part of income from other sources and needs to be declared in the ITR. While only short-term gains are taxable for equity mutual funds, both short- and long-term gains from debt funds are taxable.
Case of multiple Form 16
If one has changed jobs in the middle of a financial year, ensure to collect Form 16 from both the employers. Many make the mistake of reporting only the current employer’s income in their returns. Since you’ve availed tax benefits from both employers, there could be a good possibility that you still owe some additional tax liability at the time of filing ITR.
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Since all banks deduct tax at source for interest accrued on your fixed deposit accounts, it doesn’t mean you don’t assess your tax liability and mention it in your form. The banks only deduct 10% tax on interest income, whereas you may be in the higher tax slab of 20% or 30%, hence it become imperative that the interest income is included in the ITR and the due taxes are paid.
Sending e-filing acknowledgement
Though Aadhaar linking has become mandatory starting July 1, 2017, if one is filing the ITR before that, keep in mind that the acknowledgement i.e. ITR-V has to be sent to the income-tax department’s CPC within 120 days. Unless the acknowledgement is received by the CPC, technically the process of filing ITR is not complete. To sum-it-up, if one takes a few moments to plan ahead, read the instructions, slow down and check the ITR, one can prevent a lot of these errors.
The writer is partner, Nangia & Co LLP.