Gone are the days when economic irregularities were ‘business as usual’ and claiming 80C/ 80D/ 80G/ 10(13A)/24(b) or any other deduction in income tax returns would merely attract a disallowance and consequential additions, that too in case the returns were scrutinized. Gone are the days when the ITRs of salaried individuals were not subject to scrutiny as a practice. Gone are the days when the professionals filing tax returns of assessees could go scot free and the entire blame of wrong-doings would be the burden of the assessees only.
After coming down with a heavy hand on fake invoices under GST, now the Ministry of Finance has started alerting the income tax assessees on fake claims of deductions under Income Tax returns. Not only are assessees alerted, there are enquiries on this front from the return filers and tax consultants too.
The recent busting of rackets of fraudulent claims of tax refunds by employees of well-known companies, who had falsely claimed loss under the head income from house property in order to file fraudulent tax refund claims, is a case in point. The Income Tax Dept has also issued notices for furnishing proof of claiming rent allowances u/s 10(13A) and deductions on account of housing loan and interest u/s 24(b). Furthermore, the department has also started requiring the assessees to disclose the identity of the tax consultant who has helped in filing of the return.
Also Read: Income Tax Return: 10 ITR filing mistakes which can cost you dearly
In such cases penalties u/s 270A of the Income Tax Act can be levied upto 200% or more of the tax evaded. Further u/s 276C/ 277 prosecutions can also be invoked. Tax Consultants can also be booked u/s 278 of the Income Tax Act.
In view of the above, since only a few days are left for filing ITRs, it may be worthwhile to understand a list of items which may be kept in mind while filing ITRs, so as to save oneself from the ire of the Income Tax Department.
We list some pointers, as follows –
1. Ensure that the income disclosed is either more or equal to that which is reflected in the AIS/ TIS/ Form 26AS/ Form16/ all bank accounts. There may be cases of interest declared but not received in the bank account. This is accrued interest and therefore has to be offered for tax even though not received. In case some entries are not matched, ensure to disown the same in the Income Tax Portal. For example, there may be a case where the bank has wrongly disclosed your PAN No in an FD and the interest reflects on your AIS, ensure to disown the same on the Income Tax portal, barring which you may receive a notice.
On the contrary there may be a ‘capital receipt’ like a compensation for compulsory acquisition of land which is not liable to income tax. Ensure you disclose the same correctly. Some tax consultants also advise to not disclose the same at all, which may not be the right approach in this age of big data analytics used by the IT department.
2. Ensure savings bank interest and interest on income tax refunds are reported in the ITR. Generally, assesses and even some new ITR filers miss these.
3. In case one has sold investments, ensure the correct computation and reporting of capital gains.
4. Ensure the loan repayment to banks are correctly divided into interest and principal repayment and accordingly claimed as deduction. In case of joint loans, ensure that the total amount claimed in all the ITRs is not more than that paid.
5. Ensure you have documents like rent receipts, 80C/80D/80G receipts for deductions claimed. For rent deductions claimed, ensure that your landlord (even in case of relative) offers the corresponding income to tax in his/her ITR.
6. Many tax consultants do not prepare a balance sheet and a cash flow statement and hence miss out on important details. It is always suggested to prepare these along with the computation of income to file the ITR in a fool-proof way.
7. Finally ensure you file the correct ITR before 31st July 2023.
(By Vivek Jalan, Tax Connect Advisory, a multi-disciplinary tax consultancy firm. Views are personal)