Avoiding Mistakes & errors while filing Income Tax Returns

 

“I just filled out my income tax forms. Who says you can’t get killed by a blank?  – Milton Berle

Statistics show that a major chunk of returns are filed in the last week of due dates. Last Minute filing or casualness in filing Income Tax Returns (ITR) often results in either under-report or misreporting of income. Income Tax law provides for a penalty @ 50% of the tax if there is an under-reporting of income and 200% of the tax if the under-reporting of income is coupled with the mis-reporting of income. Casualness or ignorance while filing ITR may have other penal impacts as well.

Very often, mistakes are committed in a haste to file ITR without any intention of concealing the information. It is always advisable to file the ITR well in advance so as to avoid the last minute errors & mistakes. The deadline for filing income tax return for the FY 2020-21 is not far away & final countdown has almost begun. Following are some of the precautions which taxpayers must take while filing income tax returns:

1. Incorporated all the details in the Income Tax Returns:

a)Sin of omission can be worse than commission when it is concerned with taxation. Taxpayers need to be more cautious so as to incorporate all income, even exempt income, in the ITR forms. Exempt income like LTCG on shares up to Rs. 1 Lakh, LIC Money back/Maturity, PPF Interest, Agricultural income, etc are ignored by taxpayers for the reason that it is tax neutral. However, reporting serves the dual purpose; it not only provides correct information in the ITR but it also provides evidence in support of subsequent investments by the taxpayers which results in avoidance of notice by the department.

b)Various incomes like Interest of Saving bank account, FDR interest income, NSC Interest, etc should also be incorporated in the ITR. It may be noted that Dividend Income is no more exempt and has been made taxable from the FY 2020-21.

c)Minor’s income which is required to be clubbed with the income of the parents, etc is often forgotten by many taxpayers filing ITR at the last moment.

d)Taxpayers need to report not only actual income for taxation but also notional income, like deemed rental income if taxpayers own more than one house property, gift if the amount exceeds Rs. 50,000/- is received from unspecified relatives, Purchase or sale of the property below its stamp duty valuation, etc.

2. Ensuring that Income reflected in Annual Information Statement (AIS, formerly, 26AS) is duly reflected in ITR:

a) Income tax department has a very transparent mechanism as far as the Tax credits & various other information of the taxpayer is concerned.  The scope of AIS (earlier, 26AS) has been widened drastically so as to report more and more information in possession of the department to the taxpayers.

b) Taxpayers must check the AIS before filing the income tax return. It can act as  a cross-check measure while filing income tax returns. It contains many high value transactions carried out by the taxpayers, few income details, TDS, TCS, Income Tax refund etc details.

c) Any discrepancies in AIS like wrong income details / TDS entry not pertaining to taxpayers etc should be notified immediately to the deductor & get it rectified. While processing the return, the Income Tax Department totally relies on AIS & denies credit of TDS claimed in ITR if it is missing in AIS. Further, if any entry is available in AIS which is missing in the ITR filed, a tax notice is issued seeking a reason for not reporting it in ITR. Reconciliation of AIS with income of the taxpayers at the time of filing ITR will help in avoiding unwanted notices from the department.

3. Claim Deduction on the basis of Genuine Basis:

a) Now, no documents are required to be submitted/ attached with the ITR and the deductions/exemptions/incentives are abruptly granted to the taxpayers on self declaration without any documentary evidence.

b) Few taxpayers claim more deductions/exemptions even though the same is not legally allowable.

c) It may be noted that taxmen have the right to call for the documents /records for verification. Taxpayers should avoid temptation to evade taxes by making false claims towards deductions & exemptions. Even genuine mistakes in claiming deduction can lead to penal consequences. For example, investment in tax saving mutual funds (ELSS) is eligible for deduction u/s 80C & not all mutual funds. Be careful & make claims for genuine investment / expenditure only.

d) Recently, tax refund frauds in Bengaluru, Bhilai & other cities have shown the involvement of tax consultants in the process of return filing. Though the wrong claim or bogus deduction is abated by third person, taxpayers cannot plead ignorance. Don’t fall prey to such people or advertisements like file return for Rs. 100/- etc. Choose the right hand if not able to file the return on your own.

4. Selecting Correct ITR forms:

Selecting the correct form of Income Tax Return for filing income tax is very relevant for proper reporting. There are 7 returns forms for filing income tax returns of which ITR-5 is for AOP/Firms, ITR-6 is for Corporate Assessee and ITR-7 is for Trust. ITR 1 to ITR-4 are for individuals/HUF. Taxpayers need to be careful in selecting the ITR forms as improper forms may lead to incomplete information submission. Change in the ITR forms has become an annual feature and taxpayers should read the instructions about its applicability before preparing for it.

5. Ensure to verify / Validate the returns after filing it:

a) Uploading ITR is not the end of responsibilities. Rather, actual work starts only after filling it. After filing the return, taxpayers have to send the signed copy of acknowledgement (ITR V) to CPC, Bengaluru or have to e-verify it. Various returns though filed timely & properly, get invalidated if it remains unverified after filing.

b) E-verification is also an easy option if returns are filed by taxpayers themselves & can be done with just a few clicks.

6. Assets / Liabilities Statement:
Person with annual income of more than Rs. 50 Lakh are required to show the assets / liabilities statement in the income tax return in Schedule ALS. Taxpayers should be careful while filing such ITR with Schedule ALS.

7. File ITR within Due Date:
Late fee can be avoided by filing the ITR within the due date. Apart from this, there are various exemptions, benefits which are not available in case the returns are filed after the due date like benefit of application of income u/S 11 to the NGO/Trusts, Tax benefit to credit societies u/s 80P, benefit of carry forward of loss, etc.

One needs to understand that Software, servers, systems, professionals have their own limitations & priorities. There are instances where the penalty is imposed even due to the failure at the portal of the income tax department. “Waiting for the last minutes” or “waiting for date extension” for filing income tax returns is the key contributor to the mistakes. Earlier the better is the mantra for avoiding mistakes in the income tax returns.