10 Mistakes to Avoid When Filing Your Income Tax Return in India

Income tax return filing season has arrived, and the income tax department has made it easier with pre-filled online forms like ITR-1, ITR-2, and ITR-4 for individuals.

As salaried employees receive their crucial Form 16, it's vital to start the process early to avoid common mistakes that often occur in haste. 

The due date of July 31 for filing returns for the assessment year FY 2022-23 (AY 2023-24) may seem distant, but starting early can help eliminate errors and ensure a smooth process.

In this article, we will explore the most frequent mistakes taxpayers make and provide tips on how to avoid them.

Mistake 1: Providing Incorrect Personal Details

Correct personal details in your Income Tax Return (ITR) are crucial. You must avoid providing incorrect personal details such as:

• Providing incorrect PAN
• Incorrect Name
• Invalid Address
• Wrong Phone number
• Wrong email ID or Date of Birth
• Incorrect bank account number or IFSC code

Errors in these details can result in communication breakdowns with the tax department, leading to missing important updates or acknowledgements.

Moreover, an incorrect PAN can lead to return rejection, penalties, penal interest, and even a tax audit. Ensuring accurate information is essential to avoid such complications.

Mistake 2: Choosing the Incorrect ITR Form

Selecting the appropriate ITR form is of utmost importance when filing income tax returns. It depends on various factors like the source of income, total taxable income, the origin of income (domestic or foreign), and assets owned. Each form caters to specific income scenarios.

For instance, ITR-1 is for resident individuals with income up to Rs 50 lakh from salary, house property, and other sources. ITR-3 applies to income from business or profession, while ITR-4 is for freelancers using the presumptive method of taxation.

Choosing the wrong form can lead to defective returns and may prompt the tax department to issue a notice for refiling the return correctly. Hence, taxpayers must exercise caution to avoid such complications.

Mistake 3: Not Declaring All Income Sources

When computing the Income Tax Return (ITR), it's crucial to consider all income sources, including previous and current employment, as well as income from investments.

Failing to report any income, especially from a previous job, can lead to discrepancies in the TDS certificate (Form 16) and Form 26AS. In such cases, the tax department may issue a tax demand notice, asking the taxpayer to pay additional tax dues, if applicable.

Accurate reporting is essential to avoid such situations.

Mistake 4: Overlooking Deductions

Claiming eligible deductions like medical insurance, education loan interest, and charitable donations can reduce your taxable income and lower tax liability. However, be cautious as some donations are 100% allowed, while others are only 50% allowed.

Similarly, returns on certain investments are tax-free, while others are taxable. Claim deductions carefully to avoid scrutiny from the income tax department, but this applies only if you are filing income tax under the old regime.

Mistake 5: Neglecting to Verify the ITR Before Submission

It's common for taxpayers to make errors in their tax filing unknowingly, and the consequences may only surface when they receive a notice from the Income Tax Department. Rectifying such mistakes can be time-consuming and expensive.

Remember that the tax filing process remains incomplete until you verify your income tax return. Presently, you have 120 days to verify your ITR after submitting it.

Thankfully, several verification methods are available to verify the ITR, including:

• Sending a signed physical copy to the Central Processing Centre (CPC) in Bengaluru
• E-verification using Aadhaar OTP
• Online verification through the Internet Banking service of a bank.

Ensuring timely verification is crucial to complete the tax filing process correctly.

Mistake 6: Providing Incorrect Bank Details

Ensuring accurate and pre-validated bank account details in your Income Tax Return (ITR) is crucial to receive timely income tax refunds.

Errors in bank information can lead to delays in refunds. It is mandatory to declare all bank accounts held in India during the previous year, with at least one account selected for refund credit.

You must provide details like IFS code, bank name, and account number. The IT Department cannot credit your tax refund without pre-validated bank account details. 

All tax refunds are directly credited to your bank account, making online verification through the Income Tax e-Filing portal essential for a seamless transfer process.

Mistake 7: Failing to Reconcile Form 16 with Form 26AS

Form 26AS is a vital document to review before filing your Income Tax Return (ITR). It acts like a passbook, displaying your earnings, Tax Deducted at Source (TDS), advance tax payments and more.

Notably, it also contains information about tax credits you may be eligible for, which can offset future tax liabilities or lead to refunds for excess tax payments.

Since discrepancies may occur between Form 26AS and the calculations in Form 16 from your employer, it is crucial to cross-check and verify both documents meticulously to ensure accurate tax filing.

Mistake 8: Not Declaring Foreign Assets

When filing your Income Tax Return (ITR), it's vital to declare any foreign assets, such as bank accounts or properties. Neglecting to disclose these assets in the Foreign Assets (FA) schedule, introduced ten years ago, may result in a penalty of ₹10 lakh.

Similarly, not reporting taxable income could lead to paying 120% of the tax amount as a penalty. Ensure proper disclosure to avoid penalties or legal consequences.

Mistake 9: Filing ITR Late

The saying 'All ends end well' doesn't hold true for income tax return filing. Submitting a return after the due date is equivalent to filing on time, but it comes with consequences.

Late filing results in the loss of carrying forward losses to the next year, incurring late filing fees, extra interest on tax liability, and delays in the refund process.

Timely filing is crucial to avoid these disadvantages and ensure a smooth tax return experience.

Mistake 10: Inaccurate Record Keeping

Keeping accurate and organised records, including bank statements, receipts, and invoices, is vital when filing your Income Tax Return (ITR). These records serve as evidence to support your claims and deductions, ensuring compliance with tax regulations.

In the event of any inquiry or assessment by the tax authorities, having proper records can prevent complications and help resolve any discrepancies effectively. 

Maintaining detailed records is a responsible practice that can save you from potential tax-related issues in the future.

Conclusion

Filing income tax returns requires extreme caution as even a minor error can lead to severe consequences with the Income Tax Department. Mistakes may result in penalties or tax notices being issued.

For instance, using the incorrect ITR form can lead to the tax officer considering the return as defective under section 139(9) of the Income Tax Act and issuing a notice for a defective return. It is crucial to file returns accurately to avoid such complications and ensure a hassle-free tax filing process.