Income tax return filing season is here. The income tax department has released three forms relevant for individuals – ITR-1, ITR-2 and ITR-4, among others – online, with pre-filled data.
Likewise, many salaried employees would have received their Forms 16 – the other key document needed to file returns – while others will get them soon.
Though July 31 is the due date to file income tax returns for the assessment year 2023-24 (pertaining to FY23), the right time to start the process is as soon as you get your Form 16. An early start helps eliminate certain common errors that tend to get made while trying to complete the process in a hurry.
Read on to understand the most common mistakes that taxpayers make and how to avoid them.
Choosing the wrong ITR form
Selecting the right ITR form is step one. You need to choose the ITR form based on source of income, total taxable income, origin of income (domestic or foreign), assets and so on.
Forms ITR-1 to ITR-4 are usually relevant for individual taxpayers. For a salaried individual with total income of up to Rs 50 lakh in FY23, ITR-1 would be applicable. This form can also be used by those who draw income from other sources such as interest from bank/post office fixed deposits, agricultural income of up to Rs 5 lakh and one’s own house.
Using the wrong form will render the ITR form ‘defective.’ You could receive a notice to file revised returns and failure to respond in time will result in your returns being treated as invalid.
“The person will get a chance to rectify the defective return within 15 days of intimation. Still if he does not, then the return would be treated as invalid, as if not filed. Thereafter again on receipt of a notice from the officer one gets a chance to file the ITR but with penal consequences,” said Vivek Jalan, a partner at Tax Connect Advisory, a multi-disciplinary tax consultancy firm.
Not checking Form 16 and Form 26AS
Before you start filing your returns, ensure that you can access Form 26AS and the Annual Information Statement (AIS), both available through the income tax department’s e-filing portal incometax.gov.in.
You need to ensure that the details of tax deducted at source (TDS) and certain high-value transactions such as cash deposited, fixed deposits, immovable property transactions and so on tally with your Form 16, bank account statements and other financial records. Any error or discrepancy can result in a notice from the income tax department as the authorities will take into account figures in Form 26AS.
Should you spot any errors in these documents, reach out to the tax deductor, for instance, banks that withhold TDS on the interest earned on fixed deposits, to rectify the mistakes.
Filing at the last minute
Delaying the filing of returns to the last minute is never a wise idea. You might miss the deadline due to the lack of documents or critical information. There is also a chance that the income tax department could face glitches due to heavy visitor flow closer to the deadline.
So ensure that you start the process well in advance. While you can file returns for FY23 until December 31, 2023, you will have to shell out Rs 1,000-5,000 as late-filing fees.
Not reporting interest income
Form 16 is an important document, but not the only one you can rely on while filing returns. Even if salary is your sole source of income, the fact is that you would be drawing interest income from deposits with banks. Even your savings account balance earns interest and it has to be offered to tax. The Annual Information Statement (AIS), too, reflects savings bank account details.
Make sure you check your bank account statements, Form 26AS and AIS to ascertain accurate information on interest income earned.
Not declaring income from previous employer
You need to be extremely careful while filing returns if you have switched jobs during FY23. Such individuals will have multiple Forms 16 issued by their previous and current employers.
You have to declare the income earned from both organisations. The AIS captures all your income details, so data from both Forms 16 will get reflected. It is best to be completely transparent to avoid tax notices due to the failure to declare all income.
Not being aware of emails, messages received by joint holders
If your parents, spouse or children are joint holders of your shares, mutual funds or property, then check if they have received a nudge from the income tax department to file returns.
Snehal Patel, whose husband invested Rs 12 lakh last year in mutual funds, recently received an SMS stating, "High-value transactions reported against your PAN. File income tax returns now and avoid higher TDS."
Although Patel was only a joint holder, she got this SMS because mutual fund or credit card transactions above Rs 10 lakh a year, gold jewellery purchases above Rs 2 lakh annually, electricity bills exceeding Rs 1 lakh per month, and hotel bills above Rs 20,000 are notified to the government against the PAN owners. This includes joint owners such as Patel, a homemaker, who may not need to file returns. Check their AIS to assess whether returns have to be filed.
Errors in reporting capital gains
Treatment of capital gains earned varies depending on the source of income or asset class. Since the rates and conditions differ, computing capital gains is one area where taxpayers tend to err. For instance, capital gains on the sale of equity shares or equity mutual fund units attract 15 percent tax if the units or shares are sold within 12 months. If your holding period is longer, the tax applicable is 10 percent for gains over Rs 1 lakh during the financial year.
In FY23, capital gains on the sale of debt fund units are considered short-term gains if the holding period is shorter than three years, added to your total income and taxed as per the applicable slab rate. If it’s longer, they are liable for 20 percent tax with indexation benefits. Long-term capital gains on debt funds have been abolished now, but you need to remember this next year when you file your tax returns for income earned in FY 2023-24.
Go through your bank statements, mutual fund, demat and broking house statements, among others, to ensure that you disclose income from all sources. If tax computation for capital gains seems complex, get help from professionals.
Entering wrong bank account details
Pre-validated bank account details ensure that you receive income tax refunds, if any, on time. Any errors in your bank details would mean a delay. Also, ensure that you declare all your bank accounts.
“The details of all bank accounts held in India at any time during the previous year (excluding dormant accounts) is mandatorily required to be disclosed in the income tax return and minimum one bank account should be selected for refund credit. Details such as IFS code along with the name of the bank and account number would be required,” said Yeeshu Sehgal, head of tax market at AKM Global, a tax and consulting firm.
Not verifying returns after filing them
You might feel like putting up your feet to relax once you submit your returns. However, the process does not end at this point. You have to verify the returns for it to be taken up by the income tax department for processing. You can do this online through the I-T e-filing portal using your Aadhaar, pre-validated bank account, demat account and so on. You can also download the ITR-V, or acknowledgement form, from the e-filing website and send it by post to the income tax department’s central processing centre in Bengaluru.
A delay in verification would also mean a delay in any tax refund due to you. If you fail to verify your returns within 120 days of filing it online, it will be treated as invalid returns. You might have to re-file the returns and it may be then treated as belated returns. If you file your returns after the due date, you will have only 30 days to complete the verification.
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