Shyamal Banerjee/Mint
Shyamal Banerjee/Mint

10 common tax filing mistakes

If we have some facts listed out in front of us, it may help us avoid making such mistakes.

Though we need to file income tax returns (ITR) every year, we may still make mistakes. In fact, there are some mistakes that are commonly made by most individuals. But if we have some facts listed out in front of us, it may help us avoid making such mistakes. Here is a list.

Not e-filing returns: Any individual earning above 5 lakh per annum is required to file tax returns only in the electronic format. Even if a physical return form is accepted by mistake, the return can’t be processed.

Choosing the wrong ITR form: Choosing the correct form is of utmost importance. There are seven forms, out of which only four are applicable to individual taxpayers. Filling of an incorrect ITR form leads to a defective return notice and the return is deemed to be not filed. While some online tax filing portals automatically select the ITR form based on your tax data, it is always a good idea to know the changes which happen every year in the various ITR forms.

Not matching ITR data with income tax department’s database: Verification of ITR with the IT department’s database is important because all the transactions are scrutinized by the department. Any mismatch will surely lead to a notice. For example, if you have changed jobs during the year, both employers will give the tax benefit of basic exemption and deductions to the employee and hence less TDS would be deducted from the salary. This leads to additional tax liability at the time of filing returns. In case you do not report the previous employer’s income in your tax return, you are liable to get a notice.

Not submitting ITR-V: The one-page acknowledgment you get after e-filing is called ITR-V. Sending the signed copy of ITR-V by post within 20 days of e-filing is the only physical leg in e-filing. Otherwise, the return will deemed to be not filed.

Not reporting bank’s interest income: It is a common misconception that either the interest income from savings or fixed deposit accounts is not taxable or that tax has already been deducted on interest income by bank. In fact, banks only deduct 10% TDS on interest income, whereas you may be in the 30% tax slab. The IT department has recently started reconciliation of TDS data received from banks and the interest income reported by individuals in their returns. Non-reporting of interest income is a sure shot reason to receive a notice from the department.

Not preparing books of accounts: Millions of insurance agents file their returns primarily to claim tax refund for the TDS which has been deducted from their commission income. Commission income falls under the head “income from business or profession" and agents should file their return in ITR4. Not preparing the balance sheet and profit and loss statement is a wrong practice and may lead to non-compliance in many cases. So even though ITR4 is a complex 22-page return form, prepare books of accounts and reconcile it with your bank statement.

Providing incorrect email ID: Since all communication by the income tax department is now done via email, one should make sure that a valid and functional email ID is provided in the tax return form.

Not reporting exempt income: Several incomes such as dividends and long-term capital gains on listed securities are exempt from tax. However, you must report these in your tax return since their details are provided to the IT department by companies and brokerage firms.

Not filing returns at all: Every individual has to file returns— before allowing any deduction—if the income exceeds the exemption limit (2 lakh for every individual other than senior citizens). So a taxpayer having an annual income above 2 lakh should file returns even if he can claim the entire 2 lakh in deductions such as life insurance premium, Public Provident Fund, education loan interest and so on. Tax return papers are also required in case you are looking for a loan processing or have given in a visa application.

Incorrect assessment year while paying self assessment tax online: Assessment year is always one year ahead of the financial year. For FY2012-13 tax returns, the assessment year is AY2013-14. If you incorrectly select AY2012-13 for this year’s tax payment, you will not get credit for it when your return is processed. Online rectification is possible, but you will need to again pay the tax demand for AY2013-14 and simultaneously file for rectification of AY2012-13 return to claim refund of excess self-assessment tax paid.

Sudhir Kaushik is CFO, TaxSpanner.