Errors in filing income-tax returns frequently lead to scrutiny notices, additional liabilities, or delayed refunds.
Taxpayers must approach tax filing this season with care.
Errors in filing income-tax returns (ITRs) frequently lead to scrutiny notices, additional liabilities, or delayed refunds.
Missing documents
While preparing, taxpayers often do not collect key documents such as bank interest certificates, mutual fund and brokerage statements, rent receipts, insurance premium proofs, and receipt of Public Provident Fund deposits.
Many often do not declare overseas holdings properly.
"They miss details of foreign assets to be reported under Schedule FA of the ITR form," says Vishwas Panjiar, partner, Nangia Andersen.
Several other documents are skipped.
"These include tax deduction at source certificates, deduction receipts (for donations, tuition fees), and final (not provisional) housing loan interest certificates," says Sudhakar Sethuraman, partner, Deloitte India.
Missing documents can result in the denial of deductions.
Failure to reconcile tax forms
Form 26AS, Annual Information Statement (AIS), and Taxpayer Information Summary (TIS) contain crucial tax and transaction data.
Form 26AS captures details of TDS, tax collected at source (TCS), and advance tax payments.
"Claiming TDS or TCS credits is valid only if they appear in Form 26AS," says Sethuraman.
The AIS provides a summary of financial transactions. Overlooking it can lead to missed income disclosures.
TIS is useful while filing ITR as it helps taxpayers cross-check the information declared in their returns with the records available with the tax authorities.
"Neglecting these reconciliations often triggers notices under Section 143(1), interest under sections 234A and 234B, and penalties for underreporting or misreporting. It also leads to delays in refund and unexpected tax demands," says Panjiar.
Missed income sources
Some commonly missed income sources include small capital gains, rental income, income of spouse or children that need to be clubbed, foreign income, and interest from overseas accounts.
"All income must be reported -- salary, house property, business or profession, capital gains, fixed deposit and savings bank interest, tax refunds, and so on," says Abhishek Soni, co-founder, Tax2Win.
Bank accounts held individually, even if dormant, must be disclosed.
"Failure to do so can lead to enquiries during scrutiny assessment if the return is picked up by the income tax authorities," says Santhosh Sivaraj, partner, global employer services, tax and regulatory services, BDO India.
Omission of income from past employer
Taxpayers often fail to disclose income from a previous employer. Salary data from all employers appears in Form 26AS and AIS. If income from both employers is not fully disclosed in the ITR, it may lead to a tax notice.
"Since both employers may provide tax benefits separately, it often results in lower overall TDS," says Panjiar.
Errors in capital gains reporting capital gains tax rules vary by asset type and holding period.
"Misclassification of gains can lead to incorrect tax calculations. For example, amendments in the Finance Act 2024 (2), effective from July 23, 2024, impact tax rates and indexation eligibility based on the sale date," says Sethuraman.
"Ignoring capital gains from equity MF redemptions, assuming they are fully tax-free, is a frequent error," says Panjiar.
Taxpayers often use the incorrect cost of acquisition. Many also fail to apply the grandfathering rule for long-term capital gains up to January 31, 2018.
Errors in foreign income disclosure
Many fail to disclose foreign bank accounts, MFs, shares, and properties.
"Even dormant accounts or those with zero balance must be reported if you qualify as a resident and ordinarily resident," says Panjiar.
Errors often arise due to incorrect determination of residential status (like ROR claiming to be non-resident).
"Many taxpayers miss out on disclosing foreign shares received via ESOPs or sweat equity, assets where they hold signatory authority, and digital assets," says Sethuraman.
Improper Section 80G, HRA claims
Deductions under Section 80G (for donations to charitable institutions) are often overclaimed.
"Many individuals report donations that do not align with their income level or financial profile," says Soni.
Sivaraj warns that the tax office can cross-verify the deductions claimed using various sources.
The I-T epartment can flag house rent allowance claims, especially for large amounts where no TDS was deducted on rent paid to the landlord.
Taxpayers could be asked to file an updated return or slapped with interest and a penalty.
Other key mistakes
Taxpayers must disclose all exempt incomes, like PPF interest and Employees' Provident Fund withdrawals.
"Many taxpayers wrongly assume that exempt incomes do not need to be disclosed," says Sivaraj.
Soni adds that many fail to mention agricultural income despite the amount being significant.
After filing a return, it must be verified. "An unverified return is treated as if you never filed the return for that year," says Soni.
Refunds may fail if bank details -- account number and IFSC code -- are incorrect.
"Taxpayers must ensure the bank account provided for refund credit is pre-validated with the I-T portal linked to the taxpayer's PAN," says Sivaraj.
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Feature Presentation: Ashish Narsale/Rediff
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