Crucial Income Tax Return Filing Mistakes to Avoid: During the busy tax filing season in India (July and August), it’s crucial to avoid common mistakes to ensure a smooth Income Tax Return (ITR) filing experience. Missing the filing deadline can result in penalties, including late filing fees and penal interest. Not filing at all can lead to legal proceedings, penal interest, penalties, and even jail time. Using the wrong ITR form, providing incorrect personal information, and not disclosing all sources of income are common mistakes to avoid. It’s important to mention income from all sources, disclose capital gains and losses, and declare income earned by minor children. Additionally, taxpayers should not omit interest income from savings accounts, ignore Form 26AS and TDS certificate, or forget to verify ITR. Pre-validating the bank account and filing a revised ITR if needed can help rectify errors and avoid scrutiny by tax authorities.
Every year around the months of July and August, Chartered Accountants and Tax Consultants start doing brisk business. It is, after all, the season for filing Income Tax Returns (ITR) in India.
During this period, taxpayers are required to get and verify their Form 16, Capital Gains Statements, Form 26AS, Interest Certificates, and many more documents. Unfortunately, in the rush of getting these key documents in order, many of us miss small details that can derail the entire process of Income Tax Return filing.
Luckily, most of these small errors can be avoided. In this blog, we will discuss 14 common tax filing mistakes you must avoid for a smooth ITR filing experience.
Mistake 1: Missing The Due Date For Filing Returns
For individuals, generally, the due date for an income tax return (ITR) is falling is 31 July of the assessment year. However, it may be further extended as per the government order. For Example: Because of the second wave of the COVID pandemic, the deadline for filing returns was extended to 30th September 2021.
But, if you do not file your Income Tax Returns (ITR) by this due date, you have to incur penalties such as:
- A late filing fee of up to Rs. 10,000
- A penal interest rate of 1% per month will be charged on any unpaid taxes
- Delay in receiving a refund on any excess tax paid
To avoid these penalties and charges, you must be punctual and ensure that you do not miss the tax filing deadline.
Mistake 2: Not Filing Your Income Tax Returns
While missing the deadline for filing returns is bad enough, not filing your ITR at all is definitely even worse. If you do not file your ITR, the Income Tax Department can launch legal proceedings against you.
The consequences of these legal proceedings can be quite severe such as:
- Penal interest on tax dues calculated from the due date till filing of ITR
- A minimum penalty of 50% of the tax avoided payable in addition to applicable tax dues
- Jail time ranging from 3 years to 7 years
So file your ITR and pay your tax dues on time to avoid these severe penalties.
Mistake 3: Using The Wrong ITR Form
One of the most common ITR filing mistakes is using the incorrect ITR form. Using the incorrect form results in a defective filing which will get rejected by the Income Tax Department.
The choice of ITR form you need to use depends primarily on your sources of income. For example, if you are a salaried individual, you can file returns using ITR Form 1. But in case you are salaried and have income from capital gains from investments, you will need to use ITR Form 2.
On the other hand, if you are self-employed and have income from the profits of a business, you will need to file your returns using ITR Form 3.
Choosing the correct ITR form might seem difficult. But, currently, most websites offering ITR filing services have developed methods to ensure that you can choose the correct ITR form when filing your tax returns.
Mistake 4: Providing Incorrect Personal Information
In some cases, you might make a mistake when providing critical personal information that is included in your Income Tax Returns. Examples of such errors are:
- Providing incorrect PAN
- Wrong email ID or Date of Birth
- Incorrect bank account number or IFSC code
These seemingly harmless tax filing mistakes can lead to a number of issues with your tax filing.
For example, if you have provided incorrect PAN details in your ITR, your filing will be rejected by the tax authorities. This can result in penalties, penal interest charges, and even a tax audit.
Similarly, if you provide incorrect bank account details or IFSC code in your ITR, any tax refunds you are entitled to will be delayed.
What’s more, providing your correct email address and mobile number is also vital. This is because the Income Tax department often sends out important information through emails and SMS.
So, you should take the extra time to verify that all your personal information is correct before you submit your return.
Mistake 5: Selecting The Wrong Assessment Year
Many taxpayers get confused between the terms – “Assessment Year” and “Financial Year”.
The term “financial year” refers to the time or the year during which the income is earned.
For instance, if you are filing your ITR on or before 31st July 2023, you are filing returns for the income earned between 1st April 2022 and 31st March 2023. This period from April to March is the Financial Year 2022-23 or FY 2022-23.
On the other hand, an Assessment Year is the year following the financial year. This is the period during which the tax returns are filed. For example, if you file your tax returns in June or July 2023, the assessment year is 2023-24.
One way to remember this is to keep in mind that the Assessment Year is always ahead of the Financial Year, so for the current tax filing, you should choose the assessment year 2023-24.\
Mistake 6: Not Disclosing All Bank Accounts
Many taxpayers have multiple bank accounts, yet a large number of those filing returns do not mention all their bank accounts in their ITR. This omission is against Income Tax rules as all assessees must disclose details of all their domestic and foreign bank accounts.
This disclosure was included a few years back with the primary motive of reducing money laundering-related activities. Current tax laws also require you to provide details of all bank accounts that were closed during the financial year.
Mistake 7: Not Mentioning Income From All Sources
At the time of filing Income Tax Returns, make sure you disclose all of your sources of income. It is possible for you to have income from multiple sources, even if you are a salaried individual. While your salary will be your primary source of income, you might have received additional income such as rent from residential or commercial property, interest from fixed deposits, dividends from Equity shares, capital gains, etc.
Mentioning all of these different incomes along with their sources is mandatory at the time of filing ITR even if such income is exempt from tax. Additionally, if you have changed jobs during the financial year, make sure you disclose income received from both your current as well as previous employer in your ITR.
Mistake 8: Not Disclosing Capital Gains And Losses
Many tax filers especially omit details of Capital Gains and losses when submitting their ITR. This tax filing mistake can have serious consequences, such as an Income Tax Audit.
Under current tax rules, it is mandatory for assessees to disclose any and all capital gains or losses at the time of filing ITR. Earlier the omission of Capital Gains was a bit difficult for the tax authorities to track down. But now, with increased integration of systems, tax authorities are better equipped to catch such omissions.
So, in case you have not disclosed your capital gains or losses from shares or Mutual Funds earlier, it is recommended that you take appropriate corrective measures immediately. The first step for this is to download and check your Capital Gains statement.
Mistake 9: Not Declaring Income Earned By Minor Children
As per current tax rules, any income earned by minor children is clubbed with the parent’s income when computing taxable income. So from a taxation perspective, the income of a minor child is treated the same as income earned by the parent.
Additionally, as per tax laws, if the minor child earns an income from work using special knowledge or talent, then the minor child has to file an ITR separately. So if you have investments in the name of your minor child or is an earning member, you should take appropriate actions to declare and file income tax returns correctly.
Mistake 10: Omitting Interest Income From Savings Accounts
Many income tax assessees do not include details of interest earned from their savings account in their ITR. This might occur because of the incorrect belief that this interest income is exempted from tax. In reality, if the interest earned from savings accounts exceeds Rs. 10,000 in a financial year, you are required to pay tax on the excess interest earned.
So, when filing your income tax return, you need to compute and disclose the interest you have earned from your savings accounts. You should keep in mind that this calculation must include interest from all savings accounts across banks, Post Office savings accounts, and Co-Operative Bank accounts.
To ensure that you do not miss any of the interest earnings, you should access the interest certificate of all your bank accounts. This can be obtained through the Internet Banking service of the bank. Alternately, you can manually calculate your total interest earnings based on the interest credited to your bank accounts during the applicable financial year.
Mistake 11: Ignoring Form 26AS And TDS Certificate
Form 26AS is one of the critical documents you must verify before filing your ITR. This form is similar to a passbook and includes your earnings, Tax Deducted at Source (TDS), advance tax paid, etc.
Form 26AS also contains details of any tax credits that you might be eligible for. These tax credits can be used to offset future tax liabilities or to receive a refund for excess tax paid.
Sometimes there can be a mismatch between details in Form 26AS and the calculations provided by your employer in Form 16. This is the key reason why you must crosscheck and verify all Form 26AS and Form 16 information before filing your taxes.
Mistake 12: Not Pre-Validating Your Bank Account
At the time of filing income tax returns, you should always pre-validate your bank account. This is especially important if you are entitled to a tax refund for any excess tax paid.
If you have not prevalidated your bank account, the IT Department will not be able to credit the income tax refund due to you. This is because currently, all tax refunds are directly credited to your bank account.
So make sure you verify your bank account online through the Income Tax e-Filing portal for seamless transfer of refunds.
Mistake 13: Forgetting To Verify ITR
Many of us have made this tax filing mistake, and you might not even realize the error till you receive a notice from the Income Tax Department. What’s more, this simple error can take quite a bit of time and money to rectify.
So you must keep in mind that the tax filing process is incomplete until you have verified your income tax return. Currently, you have 120 days to verify your ITR after submitting your completed ITR form.
You can currently verify your ITR in multiple ways, such as:
- Sending a signed physical copy to the Central Processing Centre (CPC), Bengaluru
- E-verification using Aadhaar OTP
- Online verification using Internet Banking service of a bank
Mistake 14: Not Filing A Revised ITR
The Income Tax Department allows assessees to rectify errors in their original returns by submitting a revised ITR. After the Income tax return (ITR) filling is done, the Income Tax Department allows assessees to rectify errors in their original returns by submitting a revised ITR. After all, tax return filing mistakes such as accidental omissions, wrongful deductions, and even false disclosures might happen even if you are careful.
Luckily, such mistakes can be easily fixed by submitting a revised ITR. You should file your revised return before the Income Tax Department completes its assessment or before the end of the assessment year.
Currently, there is no limit on the number of revised returns that you can file. However, keeping the revisions to a minimum will decrease the possibility of detailed scrutiny by the tax authorities.
But that said, you must use this facility if you have made a mistake when filing your original returns. Rectifying your mistake by submitting a revised return is better than receiving a notice from the Income Tax Department.
After all, even minor mistakes can be considered as concealment of income by tax authorities resulting in fines and other penal interest charges.