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ITR filing: Common mistakes that could get you an income tax notice

The deadline for filing income tax return or ITR has been extended to August 31. File your returns well in advance to avoid mistakes that could prove costly later on. Mistakes in ITR filing can be rectified by filing revised return but it takes extra time and effort. Depending on the nature of income and the their status, taxpayers are required to choose an appropriate form for filing of ITR. Tax experts advise avoiding these mistakes that could fetch you a notice from income tax authorities.

1) Not matching all incomes from 26AS: The salary on which the employer deducts tax is reported by the employer in the e-TDS return filed and this data trickles into the employees Form 26AS. "In case the employee claims any exemptions in the return (e.g. HRA, LTA, etc) which were not claimed in the Form 16 issued by the employer, this will trigger a notice to the employees since the taxable salary as per the tax return will be lower than the salary reported by the employer in the e-TDS return," says Homi Mistry, partner at Deloitte India.

Also, “there may be a case where the information in 26AS may itself be wrong. In this case, one may need to approach the deductor to report it correctly," says Sandeep Sehgal, director of tax and regulatory at Ashok Maheshwary & Associates LLP.

2) Not disclosing all the bank accounts operated by the taxpayer.

3) TAN number of deductor is wrong: The TAN is a 10-digit alphanumeric number allotted to the deductor of tax under which the deductor reports the tax deducted at source. The assessee has to quote such TAN in his return while filing his tax return and claiming credit for the tax deducted by the deductor. "If the TAN is quoted wrongly (even if 1 digit or alphabet is wrong), this results in a mismatch when the return is processed, resulting in denial of the credit for the tax deducted and tax demand notice," says Homi Mistry, partner at Deloitte India.

4) Using the wrong form: “Like residents having foreign assets can't file their return in ITR-1. They need to use either ITR-2 or ITR-3 to report foreign assets," adds Sehgal.

5) Not disclosing their shareholding in unlisted companies which is being asked from this year, says Sehgal.

6) Not furnishing the financial statements in case of business income which is often skipped by taxpayers having incomes from Futures & Options which is considered business income by an Income tax department circular.

7) Interest income not reported in tax return, on which tax has been deducted and reflects in Form 26AS: If the assessee chooses the cumulative interest option for a fixed deposit (FD), the interest instead of being paid to the assessee, gets added to the FD amount and earns further interest. The full amount of the principal plus interest is paid out to the assessee on maturity of the FD.

"The bank will deduct tax on the interest accrued during the financial year when it credits the interest even though it is not paid and hence, the interest and the TDS will get reported in the assessee’s Form 26AS even before it gets paid. The tax laws allow the assessee to offer interest to tax on cash basis or on accrual basis," says Homi Mistry of Deloitte India.

"If the assessee decides to follow the cash basis to tax his interest income, he will offer the interest to tax only in the year the FD matures and he receives the interest and not on a year to year basis when the interest is credited. Hence, there will be a mismatch in the interest income and the TDS reported in the Form 26AS and the tax return filed by the assessee each year, which may trigger a tax notice."

"What the assessee needs to do is to fill in the ‘TDS credit being carried forward’ details in the TDS schedule of his tax return form (ITR) to indicate that the assessee wishes to carry forward the TDS appearing in the Form 26AS to a future tax year to be claimed in that year when the interest is received and offered to tax."

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