Filing income tax returns is an essential responsibility for taxpayers in India, ensuring adherence to legal requirements and contributing to the nation’s progress. However, the process can be intricate and overwhelming, leading to common mistakes that individuals should strive to avoid. In this comprehensive guide, discussed are common mistakes to steer clear of when filing income tax returns for income tax slab 2023-24.
Ignoring income from multiple sources
Many taxpayers forget to report income from various sources, such as rental properties, interest on savings accounts, or freelance work. For example, Mr. Ramesh failed to report his freelance income of Rs 50,000, leading to a notice from the Income Tax Department.
Inaccurate reporting of salary
Some individuals fail to report their complete salary details, including allowances, perquisites, and bonuses mentioned in their Form 16. This oversight can result in penalties and scrutiny from the authorities. Mrs. Shalini faced this issue when she failed to report her annual bonus of Rs 2,00,000, leading to a penalty of Rs 10,000.
Not considering deductions
Taxpayers often overlook deductions available under various sections of the Income Tax Act, such as Section 80C, 80D, or 80G. By not claiming these deductions, individuals miss out on reducing their taxable income. For instance, Mr. Gupta forgot to claim a deduction of Rs 1,50,000 under Section 80C for his investments in a tax-saving fixed deposit.
Failure to report exempted income
Exempted incomes, such as interest from tax-free bonds or agricultural income, need to be mentioned in the income tax return. Failure to report these can lead to penalties and legal consequences. Ms. Rekha faced an inquiry from the tax department for not disclosing her agricultural income of Rs 2,50,000.
Inaccurate information in Form 26AS
Taxpayers should verify the details in their Form 26AS, which includes tax deducted at source (TDS), to ensure it matches with the information provided in their income tax return. Neglecting this step can lead to discrepancies and tax notices.
Neglecting to Link Aadhaar and PAN
The government has made it mandatory to link Aadhaar with PAN for income tax filing. Failure to do so can result in the rejection of the tax return or difficulties in processing the refund.
Filing income tax returns after the due date can attract penalties and late filing fees. It is crucial to adhere to the deadlines set by the Income Tax Department to avoid unnecessary financial burdens.
Omitting bank account details
Taxpayers should ensure they provide accurate bank account details for seamless processing of refunds. Mr. Rajesh faced delays in receiving his refund due to incorrect bank account information.
Incorrect filing status
Choosing the wrong filing status, such as filing as an individual instead of a senior citizen, can lead to missed exemptions and higher tax liabilities. Mrs. Sharma made this error and ended up paying more tax than she should have.
Not disclosing foreign assets
Individuals with foreign assets must report them in their income tax return under the Foreign Assets and Income Reporting (FAIR) system. Failure to disclose these assets can result in severe penalties.
Incorrectly claiming House Rent Allowance (HRA)
Taxpayers should ensure they correctly calculate and claim HRA based on their actual rent payments. Providing inaccurate information can lead to penalties and increased scrutiny.
Neglecting to report income from previous employers
Income earned during a financial year from previous employers should be included in the income tax return. Neglecting to do so can result in tax notices and penalties. Mr. Sunil faced an inquiry for not disclosing his income from a previous job.
Overlooking capital gains
Taxpayers must report capital gains from the sale of assets such as property, stocks, or mutual funds. Failure to report capital gains can lead to scrutiny and legal consequences. Mr. Verma faced an inquiry for not reporting his capital gains of Rs 5,00,000 from the sale of stocks.
Not maintaining proper documentation
Maintaining accurate records of income, deductions, and investments is crucial. Failure to provide supporting documents during scrutiny can lead to disallowed deductions and additional tax liabilities.
Inaccurate calculation of self-assessment tax
When taxpayers have additional tax liabilities after deducting TDS, it is essential to calculate and pay self-assessment tax accurately. Underpayment or overpayment can lead to penalties and interest charges.
Failure to account for gift tax
Gifts received from non-relatives exceeding Rs 50,000 are subject to gift tax. It is crucial to include these gifts in the income tax return to avoid penalties.
Neglecting to file tax returns despite being non-taxable
Even if an individual’s income falls below the taxable limit, it is advisable to file income tax returns. This helps in establishing a record of income and facilitates loan applications and other financial transactions.
Incomplete reporting of salary components
Ensure that all salary components, such as allowances, reimbursements, or perquisites, are reported accurately to avoid discrepancies. Ms. Meena faced an inquiry for under-reporting her medical allowance.
Incorrect information in form 15G/15H
Form 15G/15H is required for individuals claiming non-deduction of TDS on interest income. Providing incorrect information in these forms can lead to penalties and increased scrutiny.
Ignoring tax notices
Taxpayers should regularly check their emails and postal communications for any tax notices or communication from the Income Tax Department. Ignoring these notices can result in legal consequences.
Neglecting to reconcile TDS
Ensure that TDS mentioned in Form 16 matches the TDS reflected in Form 26AS. Any discrepancies should be rectified before filing the tax return to avoid penalties.
Non-disclosure of rental income
Failure to disclose rental income from properties can lead to penalties and legal consequences. Mr. Kapoor faced an inquiry for not reporting his rental income of Rs 3,00,000.
Not utilising income tax slabs efficiently
Understanding the income tax slabs and exemptions applicable for the financial year is crucial to optimize tax planning. Failure to do so can result in higher tax outflows.
Neglecting to report interest income
Interest earned from fixed deposits, savings accounts, or bonds must be reported accurately. Failure to do so can lead to penalties and legal consequences. Mrs. Gupta faced an inquiry for not disclosing her interest income of Rs 20,000.
Relying solely on tax consultants
While tax consultants provide valuable guidance, taxpayers should actively participate in the filing process and review their tax returns. Blindly relying on consultants can result in errors and missed opportunities.
Filing income tax returns accurately and within the specified deadlines is crucial for every taxpayer. By avoiding the common mistakes discussed in this article, individuals can ensure compliance with tax regulations, avoid penalties, and make the most of available exemptions and deductions. Remember to carefully review your financial information, consult with experts if necessary, and stay updated with the latest income tax slabs and regulations for a hassle-free tax filing experience.