The due date to file an income tax return (ITR) is here, and you must not wait till the last day. Not only you may skip on essential things, but also may face technical glitches due to a last-minute rush by taxpayers.
Additionally, ITR filing after the due date would attract a penalty up to Rs 5000. Another drawback of not filing the return before the due date is that the set-off of losses gets disallowed. So, if you are someone who has delayed filing ITR till the date and is planning to file it now, then you must take care of certain things.
Here are some common mistakes to avoid while filing ITR, as you won’t have sufficient time to revise the return if required;
- Selection of incorrect ITR form:
- The income tax department has notified different ITR forms for different categories of income. For those who have only salary income, choosing and filing ITR is simpler. However, people with more than one income should consider various eligibility criteria before selecting the correct ITR form.
- For instance, individuals with a total income of less than Rs.50 lakh comprising of salary, house property income from one house, and other sources of income can file ITR-1. However, one cannot file ITR-1 if they have capital gains income or income from more than one house property. Likewise, several other conditions are to be fulfilled before choosing the correct ITR.
- Wrong selection of ITR may be regarded as ‘defective return’ filing, so one has to be careful.
- Incorrect assessment year:
- It is very important to select the correct assessment year while filing ITR. Taxpayers usually get confused between the financial year and assessment year and can wrongly choose the assessment year.
- Not verifying personal information:
- It is essential that personal details like name, address, mail-id, mobile number, PAN, date of birth, etc. are accurately mentioned in your ITR. Ensure that the details mentioned in your ITR match the details in your PAN.
- Not Choosing appropriate tax regime:
- Finance Act, 2020 introduced the ‘new tax regime’ that gives an option to pay taxes at lower rates to individuals. However, if you select the new tax regime, then you will have to forgo major tax deductions and exemptions. Hence, the regime’s choice must be evaluated as the best-fit regime would be different from one individual to another.
- No need to file returns if tax is deducted:
- Employers and banks need to deduct tax at source(TDS) on salary and interest income, respectively. However, one has to mandatorily file the tax return if your annual income is more than Rs 2.5 lakh. You must disclose the income on which tax has been deducted and claim credit for TDS in the income tax return. Tax deduction at source does not give an escape from return filing.
- Not reporting of interest income:
- Many people save in fixed deposit accounts with banks. Banks deduct tax (TDS) on the interest credited on fixed deposits. Some taxpayers believe that this interest income need not be reported as TDS has already been deducted, which is not true. Taxpayers must report the interest income while filing their income tax returns even if TDS has been deducted.
- However, taxpayers can also claim a credit for TDS while filing their income tax returns.
- Not reporting dividend income:
- The dividend received from an Indian company was exempt until 31 March 2020, while those who received dividends over Rs.10 lakh were taxed at 10%. The dividend income was exempt earlier as the company declaring the dividend used to deduct Dividend Distribution Tax (DDT) before distributing the dividend. However, the Finance Act, 2020 abolished the DDT and taxed dividends in the receiver’s hands, i.e. shareholder. Since the dividend income is made taxable in the hands of shareholders, its reporting is also to be done in ITR. The quarterly breakup of dividend income is to be disclosed in the ITR form.
- Not Disclosing all the sources of income:
- Remember to disclose all incomes including interest income, rental income from house property, income from short-term capital gains, long term capital gains and any other income sources. Also, report all exempt income like agricultural income, receipts from LIC maturity, etc.
- Many taxpayers tend to miss out on giving details of exempt income out of ignorance.
- Reporting previous employer income in case of job switch:
- Whenever a taxpayer change jobs in a year, they have to report income from both the employers. Filing returns with multiple Form 16s can be complicated and taxpayers are often not sure about how to do it. In such cases, taxpayers have to aggregate their incomes from both the employers under their income from salary.
- Not verifying Form 26AS, and AIS:
- The income tax department recently launched the Annual Information Statement (AIS) on their new portal. AIS is all set to replace the current Form 26AS.
- Presently, Form 26AS offers details of taxpayers like tax deducted at source, tax collected at source, self-assessment or advance taxes paid, etc.
- As against this, AIS is an expanded version of Form 26AS. It provides additional details of taxpayers like interest earned, dividend income, mutual fund transactions, foreign remittances, salary breakup, off-market transactions, etc.
- Not making all required disclosures:
ITR form requires various disclosures like:
- Disclosure of all bank accounts held by the taxpayer, including jointly held accounts (except dormant accounts since last two years)
- Disclosure of any unlisted shares holding, if any
- Disclosure of ‘directorship’ in Indian and foreign companies, if any
- Disclosure in Schedule AL (assets and liabilities) applicable to individuals earning income above Rs.50 lakh.
- Disclosure in Schedule FA (foreign assets), if any
All these disclosures are mandatorily required if applicable to the taxpayer and should not be missed.
- Not paying balance taxes:
The taxpayers may have a tax liability even if TDS has been deducted from their income. This is because they might have earned income from other sources on which tax was not deducted or deducted at a lower rate.
- Not claiming all eligible deductions
Taxpayers should claim all the eligible deductions available under Chapter VI-A if opting for the old tax regime. For instance,
- Deduction up to Rs.1.5 lakh under Section 80C for contributions to Equity Linked Savings Scheme (ELSS), Provident Fund, principal amount repayment of house loan, tuition fees repayment, etc.
- Claim additional deduction of Rs.50,000 if invested under Section 80CCD (1b) towards National Pension Scheme (NPS).
- Claim medical insurance deduction under Section 80D. Here remember you can also claim preventive health check-up deduction up to Rs.5000 and medical expenditure deduction for un-insured senior citizens up to Rs.50,000.
- Claim eligible House Rent Allowance and Leave Travel Allowance exemptions.
- Claim deduction for donation made under Section 80G.
- Savings interest income deduction under Section 80TTA and 80TTB (for senior citizens), and many more.
*List of deductions mentioned above is not exhaustive but illustrative.
- Not verifying your return:
Verification is compulsory for completing the ITR filing process. Without verification, the return filed will not be considered valid. The income tax department gives 120 days from the date of ITR filing to verify the return. However, there are several modes to verify the return online. Verification will take less than a minute if your Aadhaar number is linked with PAN. If not, then there are other options through which you can e-verify. The taxpayer should remember to verify the return within the time limit.
by, Archit Gupta, Founder and CEO, Clear