Filing IT returns for most salaried employees isn’t exactly challenging anymore. It hasn’t been since the advent of multiple tax filing services in the past few years. This also means that many individuals, especially younger ones with clearly defined and straightforward sources of incomes such as a salary, now file their own returns rather than use a CA’s help.
Generally, those who have been filing returns for years know the ins and outs of the ITR form and know all relevant deductions and exemptions. However, many of those who have to file their returns for the first time or those doing it at the last moment can end up making some critical mistakes. Here are the most common ones and how to avoid them.
It’s important that you use the correct ITR form while filing your tax returns. There are different ITR forms for different combinations or sources of income.
1. Not mentioning all income sources
It’s important for taxpayers to report all kinds of incomes, whether taxable or exempt while filing their tax returns. You shouldn’t think that just because an income is tax-exempt, you don’t need to report it in your returns. This becomes more important because if you fail to mention any source of income you might receive an income tax notice and undergo an assessment. Then you will have to revise your returns, provide reasons for failure and so on. To avoid such hassles you must always mention all the income earned during the financial year irrespective of it being taxable or exempt.
For instance, the part of the interest earned on fixed deposit PPF or savings account balance must be reported in the return. Failing to mention all income sources in ITR (Income Tax Returns) is treated as an act of income concealment, and may lead to trouble later.
2. Providing incorrect bank and PAN details
You must be extra careful while mentioning your basic details like bank account number, email address, PAN (Permanent Account Number) etc. while filing your tax returns. Quoting a wrong PAN number, for instance, can lead to rejection of the return by the Income Tax Department.
Furthermore, your name and date of birth must also match the details on your PAN card. Providing a working phone number and email address is important for the tax department too, as they use these details for communicating with the taxpayers. Hence, ensure that you provide all such details correctly. Your primary bank account is where you’ll get your tax refund. When providing your primary bank account details, make sure it is your active bank account which you use most frequently, so you can be notified when you receive the Tax Refund. In case you have multiple bank accounts, you should disclose them in your ITR. If you provide any incorrect details regarding your bank account then you will face difficulties in income tax refund. The Income Tax Department has taken many steps to ensure a verification of bank account details. Moreover, the Income Tax Department also allows you to select the bank account in which you want your refunds among the other bank accounts held by you.
3. Using the wrong ITR form and choosing the wrong assessment year
It’s important that you use the correct ITR form while filing your tax returns. There are different ITR forms for different combinations or sources of income and type of taxpayer. For instance, if you only earn salary income, you must use ITR1 form to file your returns, but if you also earn some capital gains from your investments alongside your salary income, you’ll need to use the ITR2 form.
An income tax return filed correctly using the wrong form is treated as defective by the Income Tax Department. You’ll need to rectify such defective returns later, consuming more of your time and effort along with penalties. Here’s a tool to help you know the ITR form applicable to you.
Since the tax filing process begins by selecting the correct assessment year. This can be confusing for those filing for the first time. Many taxpayers assume both financial year and assessment year to be the same. In reality, both are different years yet interconnected. A financial year is the year in which you earn income. For instance in the financial year 1st April 2021 to 31st March 2022 you will earn your salary, interest on FD, capital gain, rental income, and so on. While an assessment year is the period during which the income earned in the financial year is put to tax and evaluation.
You must be very careful while selecting the assessment year at the time of filing your income tax returns. An incorrect selection of an assessment year will lead to an incorrect filing, delay in filing the original ITR and penalties.
4. Not checking the tax credits
Before you file your income tax returns online, you must make sure that you’ve gone through your Form 26AS and checked for any tax credits. You can download your Form 26AS from your Income Tax e-filing account. This form consists of various incomes and their corresponding TDS (Tax Deducted at Source) details and also details related to self-assessment tax, advance tax etc. You can use all such tax credits for obtaining tax refund and/or for avoiding any additional tax payments.
While checking your Form 26AS you must also make sure that all the necessary tax credits are shown in the form. Make sure that the person responsible for deducting your TDS has deposited the correct amount of TDS. A default by your employer or client may lead to a loss of tax credit leading to a higher income tax liability.
Make sure that you add the correct details of tax credit in your income tax return. If you mention a lower tax credit then you will lose your tax refund or you will have to pay excess tax. If you mention a higher tax credit than actual, your ITR will be put to assessment and you might receive an income tax notice for mentioning incorrect information.
5. Forgetting ITR verification
Please note that it isn’t enough to just e-file your tax returns; you must ensure that you’ve received the ITR-V form after making your ITR submission, on your registered email address. In the event that a tax return is filed on the Internet, without providing your digital signature or Aadhaar number, it will need to be verified after the e-filing process.
ITR verification can be done using 6 different ways — you may either send a signed physical copy of the ITR-V to the Central Processing Centre (CPC) of the tax department situated at Bengaluru, within 120 days of filing your returns, or you may e-verify using Aadhaar OTP, Demat Account, Bank Account, Net Banking or Bank ATM your returns from within the comfort of your home or office.
If you fail to verify your income tax return then the Income Tax Department will treat it as a default in filing of ITR for the financial year. This will lead to a penalty for default in filing, you may lose your income tax refund, and carry forward of losses.
By knowing the above commonly made mistakes you can ensure you don’t make these mistakes and avoid any hassle.