Income Tax Filing is a task which we all have to do every year. And for many people, this is not an easy task. Ignorance and confusion often results in many people making mistakes in their Income Tax Returns Filing. As a result, their returns are either rejected or they get a demand notice to p file revised return.
In this blog, I will discuss few common mistakes one should should avoid while filing ITR Returns by individual tax payers.
Choosing the right Financial Year and Assessment Year
This is a basic thing but confuses many taxpayers and often results in wrong ITR filing and rejections.
By definition, Financial Year is the year in which you had earned income while Assessment Year is the year in which you are filing tax for that income.
To avoid confusion, just remember that Assessment year is the current year (between April – March) in which you are filing your tax returns while Financial Year is mostly one year before the assessment year (unless you are filing retro taxes)
Choosing the right ITR Form
Many people get confused between different ITR Forms and file their returns using the wrong form. This results in rejection and rework. Thankfully, new Income Tax Portal helps in making things clear by advising users of the right form basis few questions and answers.
In general, remember that you can use ITR-1 if you are salaried, ITR-2 if you are salaried and also have capital gains, ITR-3 / ITR-4 if you own a business.
Relying only on Form-16
One should not rely just on Form-16 for tax filing. They are generally limited to showing income details from salary. However Form-16 do not capture money received from bank interests, capital gains, income from other sources etc. which are also taxable.
Form 26-AS on the other hand capture all the transactions and money flows. Whatever is mentioned in Form 26-AS should be declared in tax filings.
Hence, always remember to check Form-26 AS also while filing your tax returns.
Making mistakes in Personal Information
While filing income tax returns, many personal information have to be entered. Error while filling these can result in rejection. This is because Income Tax Department matches these data with your records present in Adhaar / Bank account etc. Also, with digitization push of the government, all communication now happen on registered email id and mobile number. If these are wrong, you can miss important information shared by IT department.
So ensure you fill your name, DOB, PAN, Adhaar Address, Email, Phone number, Bank account and other details carefully and correctly.
Tip – Similarly, ensure that you fill the right PAN/TAN and other details of your company/income source as mismatch in those can again be a reason for your returns to be rejected.
Omitting Income from other sources
Many people just declare their salary income and forget/omit declaring income from other sources – like rent, part time job, capital gains from property sale or income from stock/mf profits, bank savings account interest, income from spouse and minor children, donation/gift received, lottery money etc. Doing so is certain way to get your return rejected or get a demand notice for extra tax payment. This is because nowadays everything is linked to your Pan and Adhaar and it will take Income Tax department just few minutes to find out all your financial details. And if they feel that you are purposefully hiding your income, they can even start legal proceedings against you which can result in jail term or hefty fines.
Hence, remember to declare all the income you receive no matter what the source – even if it is tax free income.
Tip – Remember to declare the interest received in bank savings account and dividends received from stocks/mutual funds even if they are non taxable.
Tax Slab Mismatch due to Job Switch
Salaried people often switch jobs and have multiple Form-16s during that financial year. However, while filing taxes, they just add up the total income and taxes paid and submit the ITR form. They get shocked when their forms are rejected and receive outstanding tax demand notice.
Always remember that when you switch companies, your total income (in the financial year) has increased. Individually, companies will calculate taxes as per the income they gave you but since the amount is less, you will fall in lower tax bracket. Once you total up all your income, your tax slabs may change resulting in additional tax demand.
Hence, you have to calculate taxes properly and pay self assessment taxes while filing Income Tax Returns to avoid rejections.
Tip – Remember to check your Form-16 closely to find out if your current employer has considered income from previous employer while calculating your taxes or not. If he has taken it into account, chances are that you already have paid entire tax and wont have to pay any further taxes.
Not paying Self Assessment Tax
Many people forget or ignore paying self assessment taxes. And repent when they get outstanding tax notice which is of higher amount (as interest is also added). Hence it is advisable to always be sure that you calculate your total income, tax payable and ensure that you have paid all the taxes before filing your tax returns.
Forgetting Self Assessment Tax details / Demand Notice Challan details in ITR
Just paying self assessment taxes or Tax Demand Notice is not enough. There are people who pay self-assessment taxes but forget to update the details while filing their IT Returns. As a result, they receive Income Tax Notice.
So ensure that after paying self assessment taxes, you update the details in Income Tax Portal and attach challan copy.
Tip – Ensure that self assessment tax / demand notice tax paid is also reflecting in Form 26-AS under corresponding head. If not reflecting, immediately reach out to Income Tax department.
Not completing e-verification after filing your return
You have filled in all the details correctly, checked everything and submitted your returns. However, as a last step, you also have to verify your filed return. Nowadays, this can be done via bank verification, Adhaar based OTP verification or by sending the hard copy to IT-CPC office. Unless you do so, Income Tax Department will not process your application and you can get a demand notice.
Not filing Income Tax Returns
If you think that you can escape by not filing tax returns, you are mistaken. Every individual is expected to file Income Tax Returns. Not filing IT Returns can result in tax notice, fines and legal proceedings against you.
Hope you keep the above points in mind, avoid these common mistakes when filing taxes Returns and file them correctly on-time every time.