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ITR Filing - Common Mistakes to Avoid while Filing Your Income Tax Return

Updated on: 16 Jan, 2024 05:49 PM

The due date for filing Income Tax Returns for FY 2022-23 (AY 2023-24) is approaching fast, which is 31st July 2023. Last-minute rush can sometimes lead to disclosing incorrect information, which might have a negative impact on the outcome of filing returns.

Mistakes made while filing an income tax return make one’s return invalid and may lead the person liable for penalty and prosecution. Filing an income tax return can either be a tiresome or an easy process. It all depends upon the knowledge & guidance one receives. With so many provisions, deductions, sections, Rules, etc., it is easy to get lost in the vast ocean of Income Tax.

Therefore, we have listed some of the most common mistakes tax filers make below. Our guide on common mistakes while filing income tax returns will guide you and help you avoid such mistakes.

What are the common mistakes while filing ITR?

Some of the common mistakes made while filing an income tax return are:

Filing ITR using Incorrect Tax Form

Every taxable person is required to report all his income sources that are taxable and tax-exempted using the correct ITR form applicable to him/her. If the ITR is filed using the wrong form, then the return will be termed as 'defective.' The taxpayer can determine the applicability of the form, depending on the source of income he/she has earned. Choosing the wrong ITR form may lead to the return being treated as defective or make the ITR Invalid altogether. Therefore, choosing the correct ITR form is essential.

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Mentioning incorrect personal or correspondence details

Taxpayers should be vigilant while quoting their PAN, Aadhaar, and address details. Special attention should also be given when mentioning the mail id and contact number. You must ensure that the details tally with those in your PAN. The Income Tax Department will send the Notices to the address given in the last ITR; if you do not provide the correct address, then the same will be served on the incorrect address by way of Chaspa and will pass the ex-party orders. So it's important to provide the correct address. It should also be noted that ITR-V will be sent on the email id which is given in the ITR. Reminder Text for E-Verification and Intimation text will be sent on the mobile number given in the ITR. Therefore, it is important to ensure you provide the correct details to avoid further confusion. It is also important to provide the correct Bank Account Number and IFS code to receive a speedy refund from the Income Tax Department.

Filing incorrect and incomplete bank details

Every year many refunds are not processed for incorrect personal details like name, bank account number, IFSC code, and address. Many taxpayers unintentionally provide wrong bank details & these common mistakes in filing income tax returns can delay your income tax refund. The Income Tax Department transfers all income tax refunds directly to the bank account. Therefore, always share the correct and validated bank account details for the income tax return of an active account. Unlike in previous years, a taxpayer is now also required to report the details of all the bank accounts held by him during the year.

Not reporting interest income from savings bank accounts, Fixed deposits, etc.

Due to a lack of awareness, many taxpayers fail to mention or report these under the head- ‘Income from other sources' in their tax returns. The savings account income is taxable when it exceeds Rs.10,000 annually. The interest received has to be first mentioned in the head ‘Income from other sources, and then deduction on savings account interest can be claimed under section 80TTA if you are below 60.

However, senior citizens or super senior citizens can claim a deduction up to Rs. 50,000 under section 80 TTB from the total interest income earned in a financial year. It should be noted that FDR's interest will also be included in this.

People usually believe that an FD is taxable only when it is matured; however, the information about the interest income needs to be reported every year to the ITD under the head ‘Income from other sources’. The interest credited into the taxpayer’s account can be checked by him using the FDR statement.

In the case of fixed deposits, when TDS is deducted for interest credited by the bank, the same can be claimed in ITR when it comes in the taxpayer’s form- 26AS statement.

Not reporting income of the last job

If an individual has switched jobs in a financial year, the same must be reported while filing ITR along with income from the current job. If any income is unreported, a discrepancy will be shown in the TDS certificate and form 26AS. In the new format of Form 16, a separate row is given where the income from another employer needs to be mentioned, if any.

Not reconciling Form 26AS statement

Form 26AS provides an insight into the TDS deducted and deposited to the Income Tax department in a person’s name. It also provides details about the TCS collected and taxes which are being paid during the financial year against the PAN number.

All incomes included in Form 26AS must be reported, as these details are already there with the tax department. In case of any mismatch, the tax filer may be sent a notice. A mismatch in Form 26AS and Form 16 may also lead to lesser refunds received by the taxpayer.

Not checking the bank statements

The income tax return must mention all incomes received during a particular year. Hence one should always check his/ her bank statement to consider the amount of any gift received, any interest received, or any other income received. Since ITR forms require mentioning the number of all operative bank accounts, it becomes imperative to accurately mention the exact incomes received.

Not mentioning exempted income

According to the Income tax laws, a taxpayer must report all his income, whether exempt from tax or not. A taxpayer must file Income tax returns if his gross income exceeds Rs. 2.5 lakh [ i.e., basic exemption limit]. Exempt incomes are not taxable; however, not mentioning the same would invite notices from the income tax department.

Some examples -

  1. Dividend income from shares and mutual funds is taxable in the recipient's hands at the applicable income tax slab rates to the individual. So, the individual should not forget to include the dividend income in the ITR. If you sell the house and invest the consideration received to purchase the other house, then capital gain is exempt as per Section 54 of the Income Tax Act, 1961. However, one must disclose this transaction properly in the ITR.
  2. Income from a life insurance policy that is tax-free under Section 10(10D) or Gifts received from the relatives like fathers, mothers, brothers, or sisters is exempt. Still, all these incomes must be reported in the tax form.

Not reporting interest received on income tax refunds

Interest received on
Income Tax refunds can be traced from Form 26AS and should be reported as income from other sources while filing your Income Tax Return.

Failure to E-Verify ITR V

Responsibility of filing the tax return doesn’t end with the filing of ITR only. Verifying the return within 30 days of filing is compulsory, as without it, the Income Tax Department will not process your tax return. You can verify ITR V offline by sending the ITR V (Acknowledgement) to CPC Bangalore using post or e- verify using Aadhaar OTP, EVC, etc.

Most people fail to do so. Without verification of ITR V, your tax return will not be considered as filed & notice stating your return as “Invalid” will be sent by the department. If you fail to respond to the notice within the time allowed, it will be considered that you have never filed a return by the income tax department. Hence, all penalties and non-filing fees will apply to the non-filing of ITR.

Not clubbing incomes

According to the Income Tax Act, there are certain instances where the taxpayer must club the income of his minor child or spouse with his own income and pay taxes accordingly. A minor is a child below 18 earning an income that needs to be clubbed with the parent's income. However, the income tax department exempts Rs.1500 for each child. For Example, if an FD is made in a child's name, the interest income received should be reported to the income tax department by the child's parent.

Late Filing of income tax return

‘All ends that end well’ might not be correct in the case of income tax return filing. If an income tax return is submitted after the due date, it is as good as filing an income tax return within the due date, But in case of delay in ITR filing, certain rights are deprived. Losses cannot be carried forward to the next year. Late filing fees will be applicable. Extra Interest will also be payable in case of tax liability. The refund procedure also gets delayed.

Not keeping evidence of deductions claimed in income tax return

For all expenses/ investments claimed as deduction under Chapter VIA (Children's Tuition fees, LIC, PPF, Medical Insurance Policy, etc.), maintenance of records/evidence/ proofs of expenses/ investments is required. Claiming a deduction without adequate evidence can lead to the disallowance of such deductions and an increase in tax liability at the time of scrutiny assessment. So either have evidence for a particular expense/ investment or else don’t claim a deduction of it. Your case can be taken for 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.

Failure to account for more than two property

If an individual owns multiple house properties, then any two of his house properties will be considered self-occupied, as per their choice, and the remaining will be considered ‘ deemed to be let out’.

This means that when a person owns three properties, any one of the properties, even if remains vacant for the entire year and does not provide any financial gains to the taxpayer, shall still be considered taxable. The taxpayer's potential to earn gains shall be considered, and tax will be levied on the annual value calculated as per the provision of law.

Non-filing of income tax returns

A person must file an income tax return even if his income is below the taxable limit in case he owns any assets abroad.

For instance, If you’ve pursued education from abroad, opening a bank account, there is a must. Many times, the students come back to India & withdraw money from the foreign bank account but don’t close it. If such a bank account is still not closed, the individual cannot file ITR 1; rather, he will be asked to use ITR 2 and furnish the complete details of such bank accounts. So, one should ensure all such bank accounts are closed on time.

Therefore, these types of special disclosures are mandatory & any non-disclosure may bring notice from the Income Tax Department.

Not Paying Advance Tax/ Self-Assessment Tax

Usually, TDS is deducted from the Salaried Income and Interest income received from the Bank. However, the taxpayer sometimes falls in the 30% tax bracket, and TDS on interest income is deducted at 10% or not deducted at all. So in such a case, tax needs to be calculated, which is payable additionally and needs to pay as an advance tax. Also, in the case of Rental income, assess the tax liability, and advance tax needs to be paid as per the provisions of the law. Self-Assessment tax is paid at the time of filing of return. And all the self-assessment and advance tax paid details need to be entered in the Income Tax Return filed.

Not reporting capital gains on switching units of mutual funds

These transactions are not reflected in the bank statements, so do not find a mention in the Income tax return. The profit earned on such transfers is unreported as they are not routed through the taxpayer's bank account. As switching or shifting from a particular scheme to another may result in profit or loss, it is advisable to report the same in the Income Tax Return.

Submitting Fake Invoices/ giving the wrong disclosure

Fake bills are mainly related to the deductions in accordance with Section 80C / 80D etc. of the Income tax law, such as LIC receipts or medical bills or rent receipts, etc. Fake invoices/rent receipts to claim HRA (House Rent Allowance) should not be submitted. There have been instances where individuals overstated the value of the bills despite the lesser cost of actual bills.

The Income Tax department can easily track these false bills by checking the bank details or by cross enquiring from the vendor/landlord.

Not linking PAN with Bank Accounts

It is important to link your PAN with your Bank Account Number because if there is a refund, it gets credited to your bank account. Your bank account details must be validated on the income tax website to get the refund.

Not submitting Requisite Forms

To claim certain exemptions, the taxpayer must file some forms before filing returns. For instance, if you have received salary arrears in the financial year and need some relief for the increased tax liability under section 89(1), then Form no 10E needs to be filed. Another instance is when a taxpayer wants to claim foreign tax relief, filing Form 67 is required. You must file these forms before filing the income tax returns to claim these exemptions or benefits. Failure to fill out these forms will result in the individual being unable to claim the relief. This will also increase the chances of receipt of tax notices.

Not Determining Correct Residential Status

Incorrect determination of one’s residential status is one of the most common tax filing mistakes. The residential status has two parameters 60 days and 182 days. The first thing the taxpayer needs to do is get the residential status right, as this determines the scope of income that will be taxable in India. For instance, in the case of a resident person, all their income, including foreign income, is taxed in India. However, in the case of non-residents, only their income accruing or arising or deemed to be arising in India is taxed.

Not claiming correct deductions

Some donations are 100% allowed, but others are only 50% allowed. Same like certain returns on investments are tax-free while others are taxable. Hence such deductions should be cautiously claimed to avoid scrutiny from the income tax department.

Why is it important to avoid mistakes while filing ITR?

Income tax returns should be filed with utmost care because a small mistake while filing a return can land you in deep trouble with the Income Tax Department. You could end up getting penalized or even be served a tax notice. For instance, if a taxpayer file the income tax return in the wrong form, i.e., if an individual files ITR using a form that does not apply to him, then the tax officer, while processing the ITR form, may consider the return so filed as a defective return under the provision of section 139(9) of the Income Tax Act and send the notice u/s 139(9) as defective return notice.

Frequently Asked Questions

Q- What if I have filled out the wrong ITR form?

If an individual files a wrong ITR form, the return may be treated as defective or make the ITR invalid. Therefore, choosing the correct ITR form is critical. You can revise and correct the ITR till the end of the relevant assessment year. Correct this as soon as you receive the Notice of Defective Return from the Income Tax Department.

Q- Is it possible to edit an ITR which is submitted?

Every taxpayer is entitled to revise his income tax returns under section 139(5) to provide correct information to the Income tax department. Also, a taxpayer who has filed the belated returns will be allowed to revise on or before the last date of filing the return (31st December) or before the end of the assessment of the return, whichever is earlier. Earlier; belated ITRs were not allowed to be revised.

Q- Is there a penalty for a revised ITR?

According to the current Income Tax laws, there is no penalty or fee for revising the income tax return.

Q- How many times can I revise the return?

There is no restriction on the number of times an income tax return can be revised. However, this needs to be revised on or before the last date of filing the return (31st December) or before the end of the assessment of the return, whichever is earlier.

CA Abhishek Soni
CA Abhishek Soni

Abhishek Soni is a Chartered Accountant by profession & entrepreneur by passion. He is the co-founder & CEO of Tax2win is amongst the top 25 emerging startups of Asia and authorized ERI by the Income Tax Department. In the past, he worked in EY and comes with wide industry experience from telecom, retail to manufacturing to entertainment where he has handled various national and international assignments.