It is imperative that individuals, as well as businesses, fulfill their annual obligations to file an Income Tax Return (ITR). However, due to the complexity of tax laws and regulations, it is not uncommon for taxpayers to make mistakes, resulting in additional delays, penalties, or even an audit of their tax returns.
As the deadline for submitting Income Tax Returns for the financial year 2022-23 (A.Y. 2023-24) is rapidly approaching on July 31, 2023, it is important to avoid rushing at the last minute. Hastily providing inaccurate information can have negative consequences on the final outcome of the return.
To ensure a smooth and error-free experience when e filing of income tax return, it is crucial to be aware of common pitfalls and take proactive measures to avoid them.
This blog post aims to provide a comprehensive guide that highlights the most common mistakes made while filing ITR, along with valuable tips on how to avoid them. Let's dive in and equip ourselves with the necessary information to efficiently and accurately file our ITR.
Ignoring Form Selection
Selecting the incorrect ITR form is a mistake that can lead to complications. Each form is tailored to the needs of a specific type of taxpayer, taking into account factors such as residential status and sources of income. Failing to choose the appropriate form can result in inaccuracies, rejection of the ITR, or potential tax implications, and it will result in the return being labeled as 'defective.'
In such cases, you will receive a notice to file revised returns, and failing to respond within the given timeframe will result in your returns being deemed invalid.
You can read here about the Returns & Forms applicable for Salaried Individuals. This will ensure that you provide the right information and comply with the tax regulations.
Incorrect or Incomplete Information
One of the most common mistakes taxpayers make is providing incorrect or insufficient information in their ITR. Errors in personal information, bank account details, income figures, and claimed deductions are common in this category. These errors can lead to discrepancies with other databases, resulting in tax notices and unnecessary complications.
One area that is often overlooked is the accuracy of bank account details. Submitting incorrect bank account information can cause delays in receiving tax refunds. It is advisable to verify bank account details carefully after filling them out in the form.
To prevent such issues, it is important to ensure meticulous data entry, double-check all details with supporting documents, and utilize the pre-filled data options available on e-filing portals.
Not Reporting All Sources of Income
One of the significant errors in tax reporting is the failure to report all sources of income. It is crucial to provide accurate information regarding all income sources, such as salary, business earnings, investments, and rental properties. Some taxpayers mistakenly believe that income from interest, dividends, or capital gains is exempt or not important to report. However, even if the amount is small, it is necessary to report it to avoid penalties.
To ensure compliance and prevent future issues, it is important to maintain comprehensive records of all sources of income throughout the fiscal year and to diligently report them in the e-filing of the income tax return. By doing so, you will stay compliant with tax regulations and avoid any potential problems.
Additionally, before filing returns, it is essential to go through Form 26AS and the Annual Information Statement (AIS) through the e-filing portal. These documents should be cross-checked with Form 16, bank account statements, and other financial records to ensure the accuracy of details such as TDS and high-value transactions.
Neglecting to Reconcile TDS
Tax Deducted at Source (TDS) is a significant component of taxpayers' overall tax liability. Discrepancies can arise if the TDS certificates received from employers, banks, or other deductors are not reconciled with the income reported in the ITR. It is essential to ensure that the details of the TDS align with the reported income to claim the correct amount of TDS credit. It is advisable to verify the TDS details with Form 26AS, which provides a comprehensive summary of tax-related information.
Timely reconciliation can help avoid unnecessary tax notices and simplify the process of filing an ITR.
Overlooking Deductions and Exemptions
Many taxpayers fail to claim all the allowable deductions and exemptions, resulting in a higher tax liability. It is essential to learn about the different deductions available under the Income Tax Act and ensure you have the necessary paperwork. Investing in certain plans, paying for medical insurance, paying interest on a home loan, or donating to qualified charities can help you reduce your tax burden. Review the deductions and exemptions that apply to you carefully to save the most money on your taxes. Take advantage of these provisions to optimize your tax position.
Inadequate Documentation
Inadequate or incorrect documentation can lead to complications during the ITR (Income Tax Return) filing process. Keep an exhaustive record of all pertinent documents, such as Form 16/16A, bank statements, investment proofs, rent receipts, and other supporting documents. This will make it easier to accurately report income, deductions, and investments. Having complete documentation at your disposal will serve as evidence to support your claims and ensure a smooth resolution if any discrepancies or tax scrutiny arise.
Claiming a deduction without adequate evidence can lead to the disallowance of such deductions and an increase in tax liability during scrutiny assessment. Therefore, either have evidence for a particular expense/investment, or refrain from claiming a deduction for it. Your case can be subject to Income tax scrutiny for up to 6 years after the end of the year in which the return is filed, so records need to be kept for 7 years.
Failing to File ITR on Time
Missing the deadline for submitting your ITR may subject you to penalties and interest. It is crucial to know the deadline for your specific taxpayer category and file your ITR well before that date. Filing it late may restrict your ability to revise the return if it contains errors or omissions. Put reminders in place, get your financial records in order, and make a game plan to file your income tax return within the allotted time. By being proactive and meeting the deadline, you can avoid unnecessary penalties and stay compliant with tax regulations.
Failing to e-verify ITR
After filing your tax return, it is essential to verify it within 30 days. Simply filing the return is not enough, as the Income Tax Department requires verification for processing.
Failure to verify the ITR V will result in your tax return being considered invalid, and the department will send you a notice stating the invalidity. If you do not respond to the notice within the given time, the income tax department will assume that you never filed a return. This will lead to penalties and non-filing fees for not filing the ITR.
You can verify your return electronically using Aadhaar OTP, EVC, etc or you can send it by post to the income tax department's CPC in Bangalore.
Conclusion
Filing ITR returns promptly and accurately is necessary to fulfill our tax obligations and avoid unnecessary complications. By being aware of the common mistakes discussed in this comprehensive guide, we can confidently navigate the e-filing of the income tax return. Take the time to review the details, seek the assistance of a professional when necessary, and maintain meticulous records. By avoiding these typical pitfalls, we can ensure a smooth and error-free experience when filing our ITR, improve our tax position, and stay compliant with financial regulations. Remember that paying attention to detail, being organized, and staying informed will help you successfully file your income tax return and meet your tax obligations.
Simran Sahni is a Digital Marketer by profession and a baker at heart. She holds over 6 years of experience in SEO and has worked with big brands, consistently improving their SEO performance. She has collaborated closely with various agencies and personal brands to gain a deep understanding of what strategies work best in different niches.
