Common Mistakes to avoid during Income Tax Filing
A wise man said once, “There is nothing certain in life, other than death and taxes.” And you know it’s true. Well for those, who have been facing the rush and heat which comes with Return filing season, this article is a godsend. So tune in and watch out for those mistakes, which you can avoid this tax season.
- Appropriate ITR (Income Tax Return) form
Even if, most of you consult your tax consultant for return filing, some of you may prefer to do it yourselves. With modern technology at hands, now anybody could file the returns online. However, there are various ITR forms for different income heads and combinations. For E.g. ITR 1 (SAHAJ) form is for salaried person or the person who is receiving pension or family pension and interest.
Wrong ITR may land you up in trouble, where you may end up receiving tax notice, for not reporting the income or misreporting the income. Hence, please ensure that the return form selected by you is appropriate for you.
- Missing out on interest income
You may think that you have benefit of tax exemption for interest income. However, you need to understand the constraints.
1. Interest from savings account, post office savings account, or co-operative bank accounts
2. Available only to individuals and HUF
3. Not available for interest on Fixed Deposit
Now that you understand that every paisa earned as interest apart from above is taxable. Even if the bank
has deducted TDS on interest on FD, you need to consider the interest income awhile computing tax. This is because TDS is deducted @ 10% on bank interest and you may be charged at 20% or even @ 30% as per Income Tax slabs. This may result in shortfall in tax payable. You have to be extra careful, when you have deposits scattered all across different branches of same bank. Total interest earned may be liable to tax in such cases, even if individual amounts are smaller from FD, or even RD.
- Incorrect personal details like name, PAN, Bank account number etc.
These are clerical mistakes which may happen accidentally. However, the results may be of higher magnitude. For E.g. if you mention wrong PAN or invalid PAN, it may delay processing your return, which may further delay in refund processing.
Best thing is to verify the return once again, just before you submit the return. Such cross checking of personal details will save you further troubles.
- Clubbing provisions
So you have gifted money to your spouse on your birthday! She must be very happy, but not the Income Tax department! When you gift any asset or money without adequate consideration to your spouse or children, then income on such asset or money invested in other assets will be clubbed with your income. For E.g. if your spouse uses such money to invest in share market, then LTCG (Long Term Capital Gains) or STCG (Short Term Capital Gains) arising from such share trading would be clubbed with your income.
So ensure that the gifts given by you, either yield tax free income or if your spouse invests in any other assets, then such asset result in exempt or tax free income (like LTCG on equity shares trading).
- Foreign income and assets
While most of the Assessee may think that non reporting of foreign income or assets may not be detected, the situation is changing. There are international treaties, which require reporting of such revenues flowing from such country to residents of India.
Not reporting or misreporting of foreign income or assets may land you up in the hands of black money act and you may even be prosecuted on the context of concealing the material information.
So be sure to mention even tiniest amount lying in foreign bank accounts, or consideration received on sale of ESOPs received in MNC etc.
- Non filing of ITR
Where you have gross taxable income liable to tax, you are ought to file tax return, even if you are not liable to pay tax. This is not just applicable to salaried people but is also applicable to freelancers or self employed persons, who are working with overseas clients.
Similarly, you may feel that being a senior citizen, your parents or you need not file return, as taxable income does not cross tax threshold. However, you are liable to file the return, if your gross income is above tax threshold.
- TDS on immovable property purchase
This is relatively new provision, hence has low awareness in the tax payers. If you buy immovable property like house, which is worth Rs.50 lakhs or more, then you are liable to deduct TDS @ 1% (for NRI, rate of TDS @30%). In case of no PAN, TDS rate will be 20%
Besides, you have to file challan cum statement in the form of 26QB. This will give benefit of TDS so deducted, to the seller. In case, payment is done in installments, then TDS has to be deducted on payment basis. Non deduction or non deposition of TDS in such case, would give rise to tax notice for penalty. If you are not sure, take the help of tax expert.
- Income from previous employment
Many employees change their jobs during the year. In such cases, you need to submit the income details to your present employer, who will deduct the tax on all of income. Most of the times, employees feel that, previous job income is lesser and won’t attract tax. However, if clubbed together with current income, whole salary income may be taxed at higher rates.
For this, employees should file details of income earned as well as tax already deducted, if any, to his or her current employer. In such cases, employer is bound to compute tax on present as well as pas income and consider deduction for tax already deducted.
- ITR-V acknowledgment
This is the acknowledgment when you file your return online. This document should be signed and sent back to CPC (Central Processing Centre). Within 120 days of filing the return.
Failure to do so, would fetch you notice from IT (Income Tax) department.
Above are the most common mistakes which can be avoided by paying attention to details. Even if, some of the points can be handled by the tax payer easily, some matters may require you to consult tax expert (for E.g. TDS on immovable property).