Do you file income taxes by yourself using an online income tax calculation website or app? Or does your chartered accountant handle it for you? Irrespective of the method you use, filing income taxes is a critical task – one that should be done with the utmost care. Even small careless mistakes could lead to notices from the income tax department.
Here, in this guide, we share with you some of the common mistakes taxpayers make when filing their income tax returns.
Mistake #1: Using the wrong form for income tax filing
All individual taxpayers are required to report their various taxable incomes and other tax exemptions and deductions using appropriate ITR (Income Tax Return) forms. Taxpayers have to choose one of several ITR forms, depending on the sources from which income is earned.
To give an example, ITR-1 applies to taxpayers who have earned their income from a salary/pension and have only one interest income and house property. On the other hand, if the taxpayer has incurred LTCG (Long-term Capital Gains) by selling equity mutual funds or equity shares, then he/she has to file the returns using ITR-2.
While filing income tax returns, taxpayers need to ensure that they are using the right forms for filing the return.
Mistake #2: Not filing income tax returns when the gross income is less than Rs. 5 lakhs
This is one of the most common mistakes taxpayers make. Irrespective of whether the income is exempt from tax or not, you have to file the IT returns.
As per the income tax slabs individuals who earn gross income between Rs. 2.5 lakhs and Rs. 5 lakhs are eligible for a tax rebate of Rs. 12,500 under Section 87A. This means the individual does not have to pay any income taxes. However, that doesn't mean you can skip filing income tax returns. All taxpayers whose annual income exceeds Rs. 2.5 lakhs must file the income tax return.
We also encourage taxpayers who fall within the exempt limit (of less than Rs. 2.5 lakhs gross annual income) to file their IT returns voluntarily, even if they do not have to pay any taxes. When you submit your IT returns (even when you don't pay any taxes), you can avail various benefits like:
The IT returns filed acts as proof of income in compensation cases for vehicle insurance and various other purposes.
You can claim refunds for TDS deductions.
You do your duty as a law-abiding citizen.
Mistake #3: Failing to report income from investments
Taxpayers are required to include all incomes from investments like mutual funds, interest earned via fixed deposits, capital gains from selling stocks and other assets. Generally, most taxpayers forget to include these diverse income sources.
Income from investments must be mentioned under the head, “Income from other sources.” Here are a few points to keep in mind, while reporting these incomes:
Individuals are liable to pay LTCG (Long-Term Capital Gains) due to the selling of shares and mutual funds.
Interests earned via fixed and recurring deposits are also taxable. However, individuals can claim deductions on the interest earned up to a specific limit.
According to Section 80TTA of the ITA, individuals below the age of 60 can claim deductions for interests earned via fixed and post office savings deposits for up to Rs. 10,000. Senior citizens can claim deductions up to Rs. 50,000 for interests earned under Section 80TTA.
Besides income from investments, the taxpayer has to include various other revenues like:
Income from a previous employer
Income from investments made in the name of children/spouse
Income from rents, business partnerships, etc.
So, make sure to include all your incomes under various heads while filing the returns.
Mistake #4: Using incorrect personal details
Every year, the income tax department rejects a large number of IT returns due to incorrect personal details like wrong bank account number, misspelled name, incomplete address, missing mobile numbers, etc.
When you file your income tax returns, double-check whether you have provided the correct details. Mistakes in personal information could lead to a delay in refunds and notices from the income tax department.
Mistake #5: Not reporting exempt incomes
As per the income tax act, certain incomes like interest earned via PPF, maturity proceeds from insurance policies, dividends received from mutual funds and stocks, etc. are exempted from income tax calculation.
However, even if these incomes are exempt from taxes, you have to mention them separately in the right annexure while filing your returns. Doing so helps you avoid unnecessary queries from the IT department later on.
Mistake #6: Discrepancies in TDS
Most taxpayers file their income tax returns without verifying form no. AS26. This form contains details of TDS deducted from your income. If your employer (or any other organisation/individual) deducts TDS and fails to mention your PAN number correctly, the TDS deducted is not reflected in your AS26. This could lead to discrepancies while you file your IT returns.
So, make sure that your Form AS26 has the correct TDS details. And, if there are any errors, make sure to notify it to your employer to take timely action to rectify it.
Mistake #7: Forgetting to dispatch ITR-V
Very often, taxpayers assume that the IT returns filing process is complete once the ITR-V Form has been generated. You need to mail the form to the CPC office in Bengaluru to complete the filing.
Once you have filed the income tax returns, you have to dispatch the ITR-V acknowledgement form to the CPC Bengaluru via speed or regular post. The ITR-V Form has to be mailed to the CPC office within 120 days of filing the return. You need to print the ITR-V Form, sign it with blue or black ink, and mail it. Failing to send the ITR-V Form means your IT return is not complete. However, you can avoid the physical mailing step if you have a digital signature.
Be Extremely Careful while Filing Income Tax Returns
Incorrect filing of returns could lead to queries by the IT department and other headaches down the line. So, make sure that you don't commit any of the mistakes mentioned above. Besides the seven common mistakes mentioned here, other errors people make while filing tax returns include:
Mistakes in claiming deductions under Section 80C
Failure to report income from more than one property
Not paying advance tax, etc.
If you are not confident filing your returns by yourself, consult professional CAs who can help you out. Always ensure that you file on time and correctly, to avoid troubles later on.