July 31st is here.
The consequences of missing the deadline can be severe. In addition to late filing fees, interest and penalties, you could also lose the opportunity to claim deductions under the old tax regime.
“Some of our high net worth clients don’t mind paying the late filing fees of Rs 5,000, so they tend to postpone the exercise. However, if you have opted for the old tax regime and are availing Chapter VI-A deductions (e.g. Section 80C, Section 80D, 24(b) and so on), you must file the returns before the due date of July 31,” says Mumbai-based chartered accountant Chirag Chauhan. Otherwise, you will lose out on the tax benefits, resulting in higher tax outgo.
According to the Income Tax Department, the election of the old tax regime can be made only before the due date for filing the return i.e. 31 July as per Section 139(1) of the Income Tax Act. This rule is applicable from the financial year 2023-24 when the new minimum exemption framework was designated as the default regime.
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Individual taxpayers should keep in mind while filing their returns that the relevant financial year is 2023-24 and the assessment year is 2024-25. Also, please note that the announcements made in Budget 2024 on July 23 will not be applicable while calculating taxes and filing returns now; these will come into effect for the financial year 2024-25. Apart from this, here are ten mistakes that you should avoid while filing your income tax returns this year.
Read also: Income tax filing deadline: 8 tips to file income tax returns without errors at the last minute
Data from Form 16 and Form 26AS do not match
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Before you start filing your returns, you must download Form 26AS and Annual Information Return (AIS), which can be accessed through the IT department’s e-filing portal (www.incometax.gov.in).
Data on withholding tax at source (TDS) and high-value financial and real estate transactions, etc., must match the data in Form 16 as well as bank TDS certificates and other financial records. Any discrepancy may trigger a notice from the IT department.
If you find any discrepancies in these documents, contact the tax deductor (e.g. banks, who withhold TDS on interest earned on fixed deposits, or your employer, who deducts tax from your salary every month) for clarification and rectification.
Selecting the wrong ITR form
If you choose the wrong form to file your returns, for example, ITR-1 when the relevant form was ITR-2, you will be deemed to have, even if inadvertently, concealed income and transactions that you should have disclosed in ITR-2. For example, say you made capital gains through sale of shares or had an overseas bank account in 2023-24.
If you use the ITR-1 form, you will not be able to file these returns. You may receive a notice for failure to file from the IT department. Also, if you select the wrong form, your return may also turn out to be “defective”.
Claiming deductions you are not eligible for
Since there is no need to attach documentary evidence when filing income tax returns, some misuse this flexibility to obtain higher tax refunds. Money control As noted above, some taxpayers tend to fraudulently claim deductions under section 80G on donations made to charities or deductions under section 80U for disabled taxpayers.
However, this might mean requesting notifications from the IT department, as many employees have discovered over the past year. Using artificial intelligence tools and the Annual Information Declaration (AIS), the IT department can verify the accuracy of its (erroneous) disclosures.
To avoid falling into the tax department’s crosshairs, you should be completely honest when filing your returns, rather than asking for trouble later.
Rely solely on Form 16 when filing returns
For salaried employees, Form 16 is the key document when filing returns. However, Form 16 does not show many income and transactions.
For example, your savings account balance would earn interest, which is taxable (though interest deduction up to Rs 10,000 is allowed under Section 80TTA). Similarly, you will not see any capital gains you have made on sale of shares or mutual fund units in your Form 16.
Relying solely on Form 16 would mean failing to report this income and risking a tax notice for failure to disclose. Be sure to review the AIS, as well as your bank statements and capital gains statements issued by mutual fund intermediaries and brokerage firms for accurate disclosures.
Do not disclose income from previous employer
If you changed jobs during the tax year, you need to be very careful. These salaried taxpayers will have to file two Form 16s, issued by their former and current employers.
You must ensure that you disclose income earned from both organisations and do not ignore income tax deductions, if any, made by either of your employers. The AIS captures all details of your income, so income earned from both employers will be completed.
If your ITR does not contain these details, you could end up receiving tax notices for not reporting all income.
Failure to disclose foreign assets
Many Indian employees, particularly in the IT sector, are often posted abroad. In such cases, they are usually required to open bank accounts in their destination countries. However, many do not declare these accounts once they return to India, acquire resident (and ordinary resident) status and file their tax returns.
Please note that you need to disclose these bank accounts even if the balance is zero. Also, you need to declare any equity received through stock options in foreign companies, properties or pension accounts you may have abroad, etc., in the ITR and Schedule FA (foreign assets). Non-disclosure of foreign assets can attract a fine of Rs 10 lakh and in rare cases, even penal action under the Black Money (Undeclared Foreign Income and Assets) and Imposition of Tax Act, 2015. Also, make sure to file Form 67 to avail foreign tax credit.
Read also: How to avoid double taxation: How Form 67 can help you claim the foreign tax credit
Not keeping documents detailing deductions
The new minimum tax exemption regime was declared the default tax regime from the 2023-24 financial year. All employers therefore adhered to the rule, which meant that employees who did not expressly elect the old tax regime when submitting their proposed investment returns in April 2023 suffered a higher tax expense than expected.
These employees can opt for the old tax regime even at the time of filing their returns, but a discrepancy between the details in Form 16 and the ITR could lead to notices. Make sure you retain all documentary evidence of your deductions so that you can avoid any queries that may arise.
Not declaring capital gains income
Since the AIS and Form 26AS contain the complete history of a taxpayer’s transactions, no income will go unnoticed. If you fail to declare, for example, the sale of shares or mutual fund units, you will receive a non-disclosure notice when the IT department processes your returns.
Entering incorrect bank account details
Pre-validated bank details ensure that you will receive your income tax refunds, if any, on time. Any errors in bank details could mean a delay. Double-check the account number, IFSC, bank name and other details on your ITR form before submitting returns.
Don’t ignore the IT e-return verification process
The process of filing the tax return does not end with uploading and submitting the returns online. In order for the IT department to process your return, you need to get it verified within 30 days of filing. You can easily do this online through the IT e-filing portal using your Aadhaar, pre-validated bank account, demat account, etc. It is better to complete this process along with filing the tax return instead of waiting for another 30 days.
If you do not complete the process within 30 days, the verification date will be considered as the date of filing of returns. So, if you verify your returns after 30 days and the due date of July 31 has already passed, you will be deemed to have filed the return after the due date and may have to pay late filing fees of Rs 5,000 (Rs 1,000 if income is less than Rs 5 lakh).
