Income tax return filing: Five common mistakes you should avoid while filing your ITR
As the deadline for filing income tax returns approaches, taxpayers are advised to avoid common mistakes such as using the wrong ITR form, failing to report income from all sources, not verifying their return, and confusing financial and assessment years
PremiumMost individual taxpayers file their income tax return( ITR) on their own. The deadline to file your income tax return for FY 2022-23 (AY 2023-24) is approaching on July 31, 2023. Since income tax is a complex law so rushing through the process due to procrastination can negatively affect your ITR.
Here are some of the most common mistakes committed by individual taxpayers while filling out the ITR
“ Mistakes made while filing can invalidate your income tax return and expose you to penalties and prosecution," said Abhishek Soni, Co-founder & CEO of Tax2win, a Fisdom company.
Mistakes to be avoided while filing ITR
1) Selecting the incorrect ITR Form
One of the most common mistakes when filing an ITR is using the wrong ITR form. Using an incorrect form leads to a defective filing that will be rejected by the Income Tax Department.
“The choice of the appropriate ITR form primarily depends on your sources of income. For instance, if you are a salaried individual, you can file returns using ITR Form 1. However, if you have both salaried income and capital gains from investments, you should use ITR Form 2. On the other hand, if you are self-employed with business profits as your income source, you should file your returns using ITR Form 3," said Archit Gupta, Founder & CEO, Clear
2) Interest income
Another critical mistake to avoid is failing to report income from all sources. Include income from salary, business/profession, house property, capital gains, and investments. “Omitting any income can attract penalties and scrutiny from tax authorities. Likewise, make sure to claim eligible deductions and exemptions under various sections of the Income Tax Act, such as Section 80C and Section 80D, to reduce your taxable income," said Amit Gupta, MD SAG Infotech.
If you have foreign assets or income, comply with FEMA regulations and disclose the necessary details. Also, disclose all bank accounts, including foreign accounts, while filing your tax return, Amit Gupta added.
3) Failure to pre-validate your bank account
When filing income tax returns, it is crucial to pre-validate the bank account, especially if taxpayers are expecting a tax refund for any excess tax paid.
If not done, the income tax department will not be able to credit the income tax refund owed to you, said Archit Gupta.
4) Selecting the wrong assessment year
Many taxpayers confuse the terms "Assessment Year" and “Financial Year.". The "financial year" refers to the period during which income is earned. For example, if you are filing your ITR on or before July 31, 2023, you are filing returns for the income earned between April 1, 2022, to March 31, 2023. This period from April to March is known as the Financial Year 2022-23 or FY 2022-23.
Whereas, the Assessment Year is the year following the financial year when tax returns are filed. For example, if you file your tax returns in June or July 2023, the assessment year is 2023-24.
“To remember this distinction, keep in mind that the Assessment Year always comes after the Financial Year. Therefore, for the current tax filing, you should choose the assessment year 2023-24," said Archit Gupta.
5) Forgetting to verify your ITR
A common tax filing mistake is forgetting to verify your income tax return. Often, taxpayers only realize this error when they receive a notice from the Income Tax Department. Rectifying this mistake can be time-consuming and costly.
Currently, taxpayers have 30 days to verify their ITR after submitting the completed ITR form.
“It is crucial to avoid common mistakes such as claiming reliefs, deductions, and exemptions without filing mandatory income tax forms within the due date as applicable, providing incomplete or incorrect bank details, failing to reconcile income and TDS as per Form 26AS, ignoring information available in AIS/TIS, not retaining evidence of claimed deductions, omitting of capital gain/loss transactions(if applicable), claiming false deductions to reduce taxable income, failing to disclose all sources of income," said Abhishek Soni.
Individual taxpayers should maintain proper records of documents like Form 16, Form 16A, bank statements, investment proofs, and rent receipts for a minimum of six years. These records serve as references, especially during audits or inquiries from tax authorities.
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