Filing income tax return (ITR) is a compliance requirement that needs to be attended by taxpayers every year. Most people have no clue about how it works and end up making mistakes that can take away a lot of their time and energy. There are some individuals who make the mistake of not filing the tax return itself. While a category of persons has been made exempt from tax filing, every individual has to file ITR if his/her total income (before allowing any deductions) exceeds the exemption limit. Even if your income is below exemption limit, it is recommended you file tax return as it helps in loan processing and visa application.
Compromising Security of ITR Data
- There are some companies that offer income tax filing services simply to obtain the financial data from customers. These service providers may later use this data for marketing purposes and you may end up receiving lots of unwanted calls from agents selling various insurance and investment products. So, always understand the privacy policy of your tax return filing service provider. Avoid getting your tax data used against your wish byseeking financial advice from reliable sources.
- To get their tax returns filed, many people hand over their original documents to an agent and sign on a blank ITR form. The agent then fills up the data in the signed form and files the return. This is dangerous from data confidentiality perspective. Moreover, poor handwriting and manual computations can lead to defects in the return.
Most Common Incorrect Entries
- All the communication by the income tax department is now done via email. Many individuals make a mistake of providing email ids which are either not in use or get discontinued due to inactivity or change of jobs. One should make sure that a valid and functional email ID, which you regularly access, is provided in the tax return.
- You must provide the correct bank account number along with the MICR code on your return form. This helps the Income Tax Department in processing the refund. Not providing the correct information may result in your tax return been treated as defective.
Non-Reporting of Information in ITR
- It is a common misconception that either the interest income from savings or fixed deposit accounts is not taxable, or that tax has already been deducted on interest income by the bank. In fact, banks only deduct 10% TDS on interest income, whereas you may be in the 30% tax slab. Income Tax department has recently started reconciliation of TDS data received from banks and the interest income reported by individuals in their returns. Non-reporting of interest income in the income tax return is a sure shot reason to receive a notice from income tax department.
- Every employer deducts tax on the basis of annual salary of the employee. While computing the amount of tax to be deducted (TDS), employers provide the benefit of basic exemption and deductions to the employee. If one has changed jobs during the year, both the employers will give these tax benefits, and hence less TDS would be deducted from your salary. This leads to additional tax liability at the time of filing tax return. In case you do not report previous employer income in your ITR, you will get income tax notice when the TDS data is reconciled with your return data.
- Several incomes, such as dividends and long-term capital gains on listed securities, are exempt from tax. Even though you do not need to pay any tax on these incomes, you must report these in your ITR as these incomes are reported to income tax department by companies and brokerage firms. Otherwise, data reconciliation by income tax department may lead to a notice.
ITR Filing Mistakes around Deductions
- Taxpayers often make a mistake with the tax Liability for selling a house within 5 years of possession. Any installment or part payment of amount due under self-financing schemes is allowed as deduction under section 80C. However, if you sell the house within 5 years of getting possession, all the deductions claimed on this house would be deemed to be income in this year and you need to pay tax on it. Ideally, one should avoid selling your house before completing at least 5 years of possession.
- Long term capital loss from sale of listed securities can neither be set off against any other income, nor can it be carried forward. This is because long term capital gains income is exempt from income tax. You can sell the listed equity shares within one year and realize the short-term capital loss. So, utilize the short-term capital loss to either offset other short-term gains such as sale of house property or shares, or carry the loss forward to future years.
One of the most effective ways to deal with such mistakes is e-filing your tax returns. Online filing of ITR is more convenient as it is simpler. Chances of error are low as some private websites like TaxSpanner.com have made it really easy for anyone to file their ITR on their own. Other benefits include lesser chances of scrutiny and faster refund processing.
