Filing your income tax return? Let’s dig deep into the common errors committed and see how you can keep them at bay.
Income tax return (ITR) filing is usually the last thing on one’s mind in December. However, 2020 is no ordinary year. It has seen several unthinkable things in the past shape into reality, and one among them is the extension of the ITR filing deadline.
An exercise that’s usually completed by July 31 has already seen two extensions, and now the deadline for ITR filing for FY 2019-20 has been set to December 31, 2020. While the COVID pandemic is the primary driver behind this change, what has not changed are the mistakes taxpayer commit in this all-important financial exercise. Let’s dig deep into the common errors committed and see how you can keep them at bay.
Misconception about Filing ITR at All
A common misconception harboured among people is whether they need to file ITR returns at all. There are many assessees with an annual income up to Rs 5 lakh whose tax liability is reduced to zero after the applicable rebate of up to Rs 12,500 under section 87A. However, many assume that this means not filing ITR returns at all. This is not true. If you are below 60 with a gross annual income of more than Rs 2.5 lakh in a year, then it’s mandatory for you to file your ITR with the tax department. On the other hand, if you are aged between 60 and 80 and earn a gross annual income of more than Rs 3 lakh, then also you need to file your ITR.
Those above 80 with a gross annual income of more than Rs 5 lakh also need to file returns. Note that even if your income is below the exemption threshold, you need to file tax returns if you have either paid an electricity bill of Rs 1 lakh or more during the year or have spent Rs 2 lakh or more on foreign travel.
ITR filing is also mandatory if you have deposited Rs 1 crore or more in a current account or have invested in assets in a foreign territory.
Hiding Interest Income
This is another slip-up by most taxpayers. Note that interest income from bank fixed deposits, small savings scheme and bonds, among others, are fully taxable. If you are not a senior citizen and interest from bank fixed deposits exceeds Rs 10,000 in a financial year, then the bank deducts TDS.
Many assume that it takes care of their tax on interest. However, it’s a misconception. TDS is only 10% of the income. If you are in the higher tax bracket, then your tax liability goes up. Also note that if interest income from all bank savings account is more than Rs 10,000 in a fiscal, you need to pay tax on it. So, it’s essential to take these into account and the report the same while filing ITR.
Mistake in Reporting Capital Gains
Reporting capital gains is another area where mistakes are likely to creep in. Understandably, their calculation is a complicated process as gains from different financial instruments attract different tax treatment.
However, mutual fund houses have simplified the process to some extent as they provide investors with a statement of capital gains that segregate long and short-term gains. Mentioning all the transactions and gains in a year, these statements also reflect the post-indexation tax amount. If you are filing your returns through a tax portal, all you need to do is to upload it and the fields will get populated automatically.
For calculating gains from stocks, you need a statement from your broker and for long-term gains, you need to mention scrip-wise details.
Wrong Filing up the New Schedule DI
Following the pandemic, the last date for making tax-saving investments for FY 2019-20 was extended till July 31 2020. In the income tax forms, schedule DI enables taxpayers to claim exemptions on investments they made during the extended period, until June 30, 2020.
However, you need to adopt extreme caution while filing it and mention only those investments that you want to consider for exemption in the previous fiscal, i.e., 19-20. Make sure you don’t end up putting details of investments that you want to consider for tax exemption in the current financial year (FY 20-21).
Summing it Up
Filing ITR returns isn’t a complicated process provided you are well aware of the rules and changes. If not, it’s prudent to seek the help of a professional who will help you file an error-free return charging a nominal fee. Don’t hide anything from the tax authorities as doing so can land you in trouble.
(By Rahul Jain, Head-Personal Wealth Advisory, Edelweiss Wealth Management)