Filing tax returns? Avoid these three errors at all costs | Mint

Filing tax returns? Avoid these three errors at all costs



The onus of furnishing the correct information remains on the person filing and verifying the return of income

The income tax returns (ITR) filing process has undergone a major overhaul this year. The income tax department has developed a new e-filing portal, introduced free-of-cost ITR preparation software and even brought in pre-filled ITR forms to ease the process of tax filing.

Though initiated with the right intentions, these initiatives are saddled with technical and other glitches. For instance, there is no clarity on whether a taxpayer can manually rectify errors in pre-filled fields and whether penalty on late filing will be waived if getting such an error rectified from the reporting authority delays filing returns past due date.

“Even as we transition to a highly automated filing system, taxpayers should be careful while filing ITR as the onus of furnishing correct information remains on the person filing and verifying the return of income," said Sandeep Jhunjhunwala, partner, Nangia Andersen LLP.

Any slip-up in ITR filing can get you on the taxman’s radar. We tell you three major mistakes you should avoid for a hassle-free ITR filing experience.

Getting incomes wrong: Several changes have been made in ITR forms in the past couple of years to make them exhaustive. While the auto populated ITR forms could be of assistance to taxpayers and may accelerate the filing process, they also increase chances of errors in filing.

“Due to multiple data entry points and backend linking of such data, there could be errors such as under- or over-reporting, or even missed reporting of income or inaccurate TDS details in pre-filled forms," said Jhunjhunwala.

“Information provided in such forms must be verified separately before submitting the return. In case of any error, the taxpayer may be required to communicate with the entity furnishing information. This could cause undue hardship, delays in reporting and accidental errors in filing the tax returns," he added.

Multiple mistakes in filing can also get you a notice for defective return or even a demand notice.

Mismatch between income and expenses: Apart from the income you declare in your ITR, the tax department gathers information on your earnings, especially high-value transaction of 10 lakh or more from other sources as well. The tax department has mandated credit card companies, banks, registrar and mutual fund houses to submit an annual information report on high-value transactions.

“Under Section 285BA of the Income Tax Act, a person or an authority responsible for maintaining a record of specified financial transactions, which includes transactions on property, banking, shares and securities and service rendering or works contract, among others, is required to submit a statement of financial transactions to CBDT from time to time. These statements are where the government obtains information about high-value transactions," said Sujit Bangar, founder

Additionally, Form 26AS was amended last year to include certain specified financial transactions (SFT) in addition to the TDS and tax payment details.

“These (SFT) are cash deposits of more than 10 lakh in savings account, sale and purchase of property of 30 lakh or more, purchase and sale of shares, units and debentures, etc. The outstanding tax demand if any or the details of any opening proceedings will also be reflected," said Bangar.

Any discrepancy between the income you report in your ITR and the data that the taxman has on you can bring you under scrutiny. One way to avoid this is by downloading Form 26AS in advance and cross-checking all entries in it with your bank and other relevant statements well before you sit to file your taxes.

“If you find any discrepancy, it can be brought to the notice of the tax department. Mistakes may occur due to duplication of entries in bank accounts or other statements. These can be corrected by contacting the reporting authority, but ensure that you carry out this diligence well before the ITR filing deadline to avoid last-minute hassles," said Bangar. “Carefully checking documents such as Form 16, Form 26AS, broker’s statement, demat account and bank statement should suffice to ensure correct filing of ITR," he added.

If you are a salaried person who ends up spending more than 10 lakh annually from your credit card on work-related expenses, and are reimbursed by the company later, it is advised that you document such transactions as evidence in case of an enquiry. “Any mismatch with data available with the tax authorities could mean a scrutiny or verification of the ITR filed," Jhunjhunwala warned.

Filling the wrong ITR form: For filing ITR for FY21, the taxpayer has to choose from among seven tax forms. The right form to fill is to be determined based on the total amount and all sources of income earned in the financial year, which includes both taxable and tax-exempt incomes.

For instance, for a person with income from salary or pension, one house property, and sources including interest from deposit, gifts, and dividend, amounting to less than 50 lakh, ITR-1 is applicable. Now, say, a salaried individual with no other income has incurred long-term capital gains (LTCG) of 40,000 in the financial year. The person may believe that since LTCG below 1 lakh is tax-exempt, he or she can opt for ITR-1 as there is no other income to report besides salary. However, this can land the person in trouble.

“LTCG from stocks and equity funds have to be reported in ITR-2 irrespective of the amount of gains. ITR forms require disclosure of both taxable and tax-exempt incomes so the taxpayer should choose the ITR form depending on the nature of income he or she earns and not just on the amount. ITR-1 is simply for those who have no income other than salary or pension, rent from one house property and other sources," said Bangar.

Similarly, if your equity investment is not just limited to stocks and funds and also includes futures and options, you have to select between the more complicated ITR-3 and ITR-4, as gains or losses from the derivatives market are treated as business income and not capital gains.

Filing returns using the wrong form can fetch you a notice for defective return under Section 139(9) from the taxman. “Filing wrong ITR form may make such return invalid. An invalid return would mean that ITR has not been filed for a particular assessment year," said Jhunjhunwala.

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