By India Today Business Desk: As the deadline for filing income tax returns (ITR) for FY 2022-23 (AY 2023-24) approaches on July 31, 2023, it’s crucial to avoid common mistakes that can lead to penalties and even prosecution.
Here are some of the most common errors taxpayers make while filing their income tax return.
Wrong ITR form
One of the most frequent mistakes is using the wrong ITR form. The choice of the appropriate ITR form primarily depends on your sources of income.
For instance, salaried individuals should use ITR Form 1, while those with both salaried income and capital gains from investments should use ITR Form 2.
Self-employed individuals with business profits as their income source should file their returns using ITR Form 3.
Using an incorrect form leads to a defective filing that will be rejected by the Income Tax Department.
Failing to report income from all sources
Another critical mistake to avoid is failing to report income from all sources. This includes income from salary, business/profession, house property, capital gains, and investments.
Omitting any income can attract penalties and scrutiny from tax authorities. Similarly, it’s important to claim eligible deductions and exemptions under various sections of the Income Tax Act, such as Section 80C and Section 80D, to reduce your taxable income.
If you have foreign assets or income, ensure you comply with FEMA regulations and disclose the necessary details. Also, disclose all bank accounts, including foreign accounts, while filing your tax return.
Forgetting to e-verify ITR
A common tax filing mistake is forgetting to verify your income tax return. Taxpayers often realize this error when they receive a notice from the Income Tax Department. Rectifying this mistake can be time-consuming and costly. Currently, taxpayers have 30 days to verify their ITR after submitting the completed ITR form.
Verifying Form 26AS and AIS
It’s also crucial to reconcile income and TDS as per Form 26AS and not ignore information available in AIS/TIS.
The income tax department launched the AIS in November 2021, which is much more comprehensive than Form 26AS.
It contains details of the income from various sources (salary, interest income, dividends, capital gains) received by the taxpayer during the financial year.
Both AIS and Form 26AS are equally important and should be referred to by taxpayers while furnishing their income tax returns.
Underreporting income is another serious mistake that can lead to fiscal penalties and, in extreme cases, criminal charges. In cases of substantial understatement, the Accuracy-Related Penalty is 20% of the portion of the underpayment of tax that was understated on the return.
Missing ITR filing deadline
Failing to file your tax return before the deadline can also lead to penalties. The Failure to File Penalty is 5% of the unpaid taxes for each month or part of a month that a tax return is late. However, if you’re due a refund, there’s no penalty for failure to file. But remember, you cannot obtain a refund without filing a tax return.