Filing income tax returns (ITR) is an essential task for every taxpayer. However, many individuals make mistakes while filing their returns, which can lead to unnecessary delays, penalties, or even tax audits. These errors could be due to incorrect data entry, lack of awareness about tax laws, or simple oversights.
In this blog, we’ll walk you through the most common tax filing mistakes that taxpayers often make and provide actionable tips to avoid them. By being aware of these mistakes, you can ensure a smoother, error-free filing experience and avoid any negative consequences.
1. Failing to Report All Sources of Income
One of the most common mistakes that taxpayers make is failing to report all their sources of income. It is essential to disclose every income source to ensure that you are paying the correct amount of tax. Not reporting income from side businesses, freelance work, interest income, capital gains, or even gifts can result in tax evasion charges.
How to Avoid It:
Be Thorough: Ensure that all income sources are included, such as salary, business income, rental income, and interest on savings accounts.
Cross-check Bank Statements: Review your bank statements and investment reports to ensure you haven’t missed any interest or dividend income.
2. Incorrectly Claiming Deductions
Taxpayers often make mistakes while claiming deductions under sections such as 80C, 80D, 80G, and others. Sometimes, taxpayers overestimate the amount of deduction they can claim or fail to include the necessary documents to substantiate the claim.
How to Avoid It:
Ensure Eligibility: Only claim deductions for expenses or investments that are eligible under specific sections.
Keep Documents Ready: Maintain all supporting documents, such as receipts, investment proofs, and medical insurance details, to support your claims.
Limit under Section 80C: The maximum deduction under Section 80C is ₹1.5 lakh, and taxpayers sometimes try to exceed this limit.
3. Incorrect or Missing Bank Account Details
When you file your tax return, providing your correct bank account details (especially your IFSC code and account number) is critical, especially if you are expecting a tax refund. Missing or incorrect bank details can delay your refund or cause it to be deposited into the wrong account.
How to Avoid It:
Double-check Your Bank Details: Ensure that your account number, IFSC code, and the account type (savings, current) are entered accurately.
Verify Account Details: Cross-check your bank account details in the tax portal before submitting the return.
4. Filing the Wrong ITR Form
Choosing the wrong ITR form is a common mistake. The Income Tax Department provides various ITR forms based on income types. Filing the wrong form can result in your return being rejected, and in some cases, it can even lead to penalties.
How to Avoid It:
Know Your Income Type: Choose the correct ITR form based on your sources of income. For example, ITR-1 is for individuals with income from salary, pension, or income from one house property, whereas ITR-3 is for those who have business income.
Check Income Tax Website: The Income Tax website provides a detailed description of each ITR form. Refer to this before filing.
5. Missing the Deadline for Filing
Many taxpayers miss the deadline for filing their returns, either due to procrastination or forgetting the date. Failing to file by the due date can lead to penalties and interest charges under sections 234A, 234B, and 234C.
How to Avoid It:
Mark the Deadline: The due date for tax filing is usually July 31st for individuals. Mark this date on your calendar or set reminders to ensure you file on time.
File Early: Avoid last-minute rush by filing early. It gives you enough time to make corrections if needed.
6. Incorrectly Reporting Capital Gains
Capital gains are taxed differently depending on whether they are short-term or long-term. Taxpayers often make mistakes by failing to correctly categorize the gains or miscalculating the holding period. Additionally, taxpayers might not factor in indexation benefits while calculating long-term capital gains (LTCG).
How to Avoid It:
Maintain Accurate Records: Keep track of all your purchases, sales, and associated costs (brokerage, transaction fees, etc.).
Categorize Correctly: Classify your gains as either short-term or long-term based on the holding period.
Claim Indexation: If you’re selling long-term assets, remember to apply indexation benefits to reduce taxable capital gains.
7. Not Verifying TDS in Form 26AS
Tax Deducted at Source (TDS) is a common method of tax collection, and the amount deducted must be reflected in your Form 26AS. Many taxpayers fail to check this form before filing, leading to discrepancies in the amount of TDS claimed.
How to Avoid It:
Check Form 26AS: Log in to the Income Tax e-filing portal and verify that the TDS deducted by your employer or other deductors is correctly reflected.
Match TDS Details: Ensure that the TDS deducted and reported by the deductor matches the details in Form 26AS before filing.
8. Failing to e-Verify Your Return
After filing your tax return, it is mandatory to e-verify it to complete the filing process. Failing to e-verify your return within the stipulated 120 days can result in your return being considered invalid.
How to Avoid It:
E-Verify on Time: Once you’ve filed your return, make sure to e-verify it through methods like Aadhaar OTP, net banking, or digital signature.
Set Reminders: If you forget to e-verify, you can miss the deadline, so always verify within the given time frame.
9. Not Reporting Foreign Income (For NRIs)
Non-Resident Indians (NRIs) sometimes make the mistake of not disclosing their foreign income when filing tax returns in India. However, global income, including income earned abroad, must be reported if you are a tax resident in India.
How to Avoid It:
Disclose Global Income: Ensure that you report all foreign income and pay taxes accordingly. You may also be eligible for foreign tax credits under Double Taxation Avoidance Agreements (DTAA).
Consult a Tax Expert: If you have foreign income, it is advisable to consult a tax professional to help with filing.
10. Ignoring Taxpayer’s Responsibilities for Business Income
Freelancers, business owners, and self-employed individuals often overlook their obligations while filing taxes. This includes underreporting income, claiming excessive expenses, or not maintaining proper records of business transactions.
How to Avoid It:
Keep Detailed Records: Maintain accurate records of all business-related income and expenses, including invoices, receipts, and contracts.
Pay Advance Tax: Ensure that you are paying advance tax as per the prescribed schedule, especially if your tax liability exceeds ₹10,000 in a financial year.
Conclusion
Filing tax returns may seem daunting, but avoiding these common mistakes can make the process much smoother. By ensuring you report all sources of income, claim the correct deductions, and file on time, you can minimize errors and avoid penalties. Always cross-check your return for accuracy and ensure that all required documents are in place.
Remember, filing taxes is not just about compliance—it’s about managing your financial future. By staying informed and avoiding these common mistakes, you can ensure that your tax filing is done efficiently and accurately. If in doubt, seek professional advice to make sure your tax returns are in order.
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