15 Common Mistakes while filing Income Tax Returns




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15 Common Mistakes while filing Income Tax Returns

The final countdown for filing the Income Tax Returns (ITR) has begun. In a haste to file return, many errors & mistakes are committed which results in unwanted consequences. From invalidation of returns to levy of penalty, from denial of refund to issue of notices/ demands, these are mostly the results of mistakes while filing ITR. Following are some of the most common errors which results in issuance of undesirable notices or denial of benefits to the taxpayers:

  1. Not selecting correct Income Tax 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 1 to ITR-4 are for individuals/HUF, ITR-5 is for AOP/Firms, ITR-6 is for Corporate Assessee and ITR-7 is for Trust. Taxpayers need to be careful in selecting the ITR forms as improper forms may lead to incomplete information submission.
  2. Filing without verifying Tax Credit Statement (Form No. 26AS) & Annual Information Statement (AIS)/ Tax Information Summary (TIS):
    Income tax department is collecting information from various sources and has a very transparent mechanism for sharing it with the taxpayers.  Various details are reflected in Form 26AS as well as in AIS. Taxpayers should invariably check 26AS & AIS before filing ITR. It may be noted that if any entry is available in Form 26AS which is missing in the ITR filed, notice is issued & addition is done while processing the income tax return U/s 143(1)(a).

There are cases where there are discrepancies in the 26AS / AIS vis a vis actual income & so taxpayers must reconcile the transaction entries with the 26AS/AIS. Any discrepancies in Form 26AS & AIS should also be notified immediately to the deductor / reporting entities. Further, feedback may also be given at the income tax portal regarding erroneous reporting. Rather than filing the ITR on the basis of merely 26AS/AIS, taxpayers must work it out on the basis of bank statements and other records. Reconciliation of the mismatch should be kept ready by the taxpayers in its working records.

  • Non-Disclosure of Loss in the Income Tax Return:
    Often taxpayers don’t disclose the loss in ITR for the reason that there is no loss to the Government Treasury as a result of non disclosure. Disclosure of loss in ITR entails the benefit of carry forward of the loss for set off against subsequent years income and also results in due disclosure.
  • Non Disclosure of the Exempt Income:
    Though the exempt income is tax neutral, it is advisable to show the same in the ITR as it justifies subsequent investment as well. Further, taxpayers may note that even though the agricultural income is tax free, it is required to be aggregated for tax computation purposes.
  • Not incorporating the details of the transactions in Shares & Mutual Funds:
    The transactions of shares and mutual funds sale is available on the AIS/TIS of the taxpayers. Taxpayers must verify and must ensure the proper disclosure as non-disclosure of the same invites income tax notices.
  • Not incorporating the details of the Foreign Assets:
    It is necessary for Resident taxpayers having foreign bank accounts or any assets like share, equity holding in foreign company etc to incorporate the same in the ITR
  • Making claim without verifying the documents:
    The practice of enclosing documents with the ITR forms has been done away with long ago. Now, no documents are required to be submitted/ attached with the ITR and the deductions/exemptions/incentives are abruptly granted to the taxpayers without documentary evidence. Few taxpayers claim more deductions/exemptions even though the same is not legally allowable. 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) & not all mutual funds is eligible for deduction u/s 80C. Be careful & make claims for genuine deductions only.

 

  1. Avoiding Temptation to approach Bogus Tax Consultants::
    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. Choose the right hand if not able to file the return independently on your own.
  2. Not verifying the return after filing ITR:
    Uploading ITR is not the end of responsibilities. Taxpayers are required to verify the ITR within 30 days from the date of filing it. There are cases where income tax returns are filed timely but it gets invalidated as it remains unverified.
  3. Failure to show the shares holding in a company.
    Taxpayers holding shares of unlisted shares / closely held companies must show it in the ITR as it has a separate schedule for such reporting.
  4. Non-Validation of the Bank Account:
    Income tax refund can be issued only if the bank account is pre-validated. Taxpayers must ensure to validate the bank account before filing the income tax return and must mention it also in the ITR.
  5. Non-Disclosure of the income of the Minor:
    The income of a minor child is required to be clubbed with the income of the parents. Taxpayers must ensure that the income of the minor is duly offered for taxation by clubbing it in the income tax return.
  6. Disclosing income accrued but not received:
    There are various incomes like Bank FDR with the credit societies, KVP, NSC, etc which are not getting reflected in the 26AS/AIS. Taxpayers must be cautious to report the same on an accrual basis in the ITR forms.
  7. Claim of TDS/TCS/ Advance Tax:
    Income tax refund as a result of TDS/TCS etc is subject to the condition that the same is reflected in the ITR filed. Non-reporting it in the ITR results in denial of the credit of such an amount.  Taxpayers need to be careful now as the details of advance tax are not available in the Form No. 26AS but the same needs to be verified from AIS.
  8. Interest on Income Tax Refund:
    Interest on income tax refund is taxable and the taxpayers must offer it for taxation if any interest is received by the taxpayers in the refund received for the earlier year.

 

Conclusion:
Statistics show that a major chunk of returns are filed in the last few days. Casualness in filing income tax returns often results in either under-report or misreporting of income. Now, the cost of penalty is more than the cost of tax and so taxpayers need to be more cautious so as to incorporate all the required details in the ITR forms.

 

 

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Regards,
CA Naresh Jakhotia
Partner – M/s. SSRPN & Co.
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