A majority of taxpayers pay their taxes on time and also exercise due diligence while filing their income tax return (ITR). However, in a rush to file their ITR within the due date of July 31st every year, many of them end up making some mistakes – more because it is once a year activity for them and also because tax rules keep changing from time to time. What is worrisome is the fact that if someone commits a mistake in filing his tax return, he may not only end up losing income tax refund, but may also have to pay penalty and even face prosecution in some cases.
Therefore, to help taxpayers avoid such mistakes, we have compiled a list of 10 such common tax-filing mistakes. Here they go:
1. Choosing the wrong tax return form
The Income Tax Department has issued 7 types of income tax return (ITR) forms, and selection of an ITR form for filling tax return depends upon the type of income and status of the tax payer. ‘The disclosure requirements are different in all the forms and, therefore, it is important to choose the correct form while furnishing your income tax return, failing which your return can be treated as defective. However, many taxpayers choose the wrong ITR form for filing their tax return,” says Gopal Bohra, Partner, N.A Shah Associates LLP.
2. Filing physical return where e-Filing is required
The Income Tax Department gives taxpayers the option to either file their tax return physically or do that online. However, if someone’s assessable income exceeds Rs 5 lakh, then it becomes mandatory for him to e-file his income tax return. Still many people end up filing a physical tax return where e-Filing is required.
3. Non-Disclosure of Foreign Assets and Income
It is mandatory for all ordinary resident taxpayers to disclose correct details of their foreign assets and income outside India in their income tax returns. Under the Black Money (Undisclosed Foreign Income and Assets) Imposition of Tax Act, 2015, tax officers can levy a penalty of Rs 10 lakh if the taxpayer fails to furnish any information or furnishes inaccurate information in the return with respect to foreign income and assets. Still, lots of taxpayers do not disclose correct details of their foreign assets and income outside India.
4. Not reporting salary from more than one employer
Many times it is observed that employees receive salary from the previous employer on settlement of their dues or sometimes the employees receive salary from multiple employers. In such a scenario, employees are required to incorporate salary received during the year from all the employers in the ITR form, which is not done in many cases.
5. Non-Disclosure of losses being carried forward
In order to carry forward certain losses incurred during the year for set off against income in future years, it is mandatory to file one’s income tax return on or before the due date. If the income tax return claiming carry forward of the current year’s losses is filed after the due date, such losses will not be allowed to be carried forward.
Further, “it is also suggested to fill up the entire schedule pertaining to brought forward losses correctly in every subsequent year till such losses are set off. In case the disclosure has been omitted, the taxpayers may be denied to claim set off of brought forward losses and they may end up paying higher taxes,” says Bohra.
6. Incorrect Disclosure of Capital Gains
Tax rates for income from capital gains depend upon the holding period and types of the capital asset (e.g.: 15% for short-term equity shares, slab rate for debt mutual fund, etc.) sold during the year. “The income tax returns also provide for different schedules depending upon the type of the asset. Accordingly, tax payers should ensure that sale of capital asset is disclosed in the correct schedule so that the return utilities provided by the department do not calculate tax at an incorrect rate,” says Bohra.
7. Not reconciling income with Form 26AS
It is of utmost importance to reconcile and disclose income in your tax returns in sync with income reflecting in Form 26AS. Similarly, income from salary should match with that reported by your employer in Form 16. Any difference may result in you receiving notices from the department asking for clarification. Therefore, a reconciliation of any difference may help the taxpayer avoid unnecessary trouble in the future. Still this is not done in many cases.
8. Non-Verification of e-filed ITR
Most of the tax payers are required to file their income tax return electronically. However, only furnishing the return electronically is not enough and you are also required to verify the return so that your identity is authenticated. “You can either e-verify the return by Aadhaar OTP, linking your login with Demat A/c, Net Banking or send the signed copy of ITR acknowledgment to CPC, Bangalore within 120 days. Failure to verify your return within the specified time can result in you being considered as a non-filer by the tax department,” informs Bohra.
9. Non-Disclosure of Exempt Income
There are several types of incomes which are exempted from the levy of tax like Dividend Income, PPF Interest etc. Although these are exempted from the levy of tax, these are still required to be reported in the income tax return.
“Most people don’t disclose such incomes assuming this is not required to be disclosed as these are exempted from the levy of tax. But this is not correct. Exempted incomes are also required to be reported in the income tax return and the ITR Forms specifically ask for details of these exempt incomes,” says Karan Batra, Founder & CEO of CharteredClub.com.
10. Excluding FD interest from taxable income
While interest income up to Rs 10,000 from savings accounts is exempt, one is requited to pay tax on interest income earned from fixed deposits. However, taxpayers who are not aware about this rule, exclude fixed deposit interest from their taxable income, which should never be done.