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September 18, 2020

7 reasons why you should not use free ITR filing services from online websites

by shivam jaiswal in Income Tax

7 reasons why you should not use free ITR filing services from online websites

An income tax return (ITR) is basically a document that is filed as per the provisions of the Income Tax Act, reporting one’s income, profits and losses and other deductions as well as details about tax refund or tax liability. The deadline for filing Income Tax Return for corporate and other assessees who are to get their accounts audited under Income Tax Act 1961 or under any other law for the time being in force is 30th September and for others, it is 31st July every year as have been prescribed under the Act.

However, with the ongoing COVID -19 pandemic a lot of income tax due dates were extended by The Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance, 2020 read with Notification No. 35 /2020, dated 24-06-2020. In view of the same, the due date of furnishing ITR for FY 2018-19 has been extended till 31st July, 2020 and for FY 2019-20 till 30th November, 2020.

The process of filing income tax return (ITR) can become quite complex if you do not understand the implications of what you are filling in the form. Taxpayers face many issues while filing ITR such as:

  • Which ITR to file as the income tax department issues several ITR forms and which form one should use depends on your sources of income.
  • Under the heads of income, there are several incomes which are tax-free and incomes from which deductions and exemptions are allowed. In such situations, computing taxable income accurately becomes challenging.
  • Computing deductions
  • Filling correct tax deducted at source (TDS) in ITR
  • Not able to get HRA tax relief in case one has forgotten to submit any of the required documents
  • Not submitting tax proofs to the employer on time
  • Forgetting/not knowing your password
  • Not paying advance taxes on time

Collating information from several sources and then filing ITR with correct information at the last minute can be taxing. Considering these difficulties, taxpayers usually meet a tax consultant or a chartered accountant to help process their tax returns. However, consulting with an expert comes with a high fee cost.

This is where online tax portals come to the rescue. Income tax department has enabled intermediaries to file electronic IT returns on behalf of the taxpayer. This has helped in creating online-based tax portals some of which file income tax returns for free.

The intermediaries mandate the users to upload Form 16 and Form 26AS if applicable, and input the basic details like name, PAN or Aadhar and bank account. The online site reads the submitted forms and pre-fills the correct ITR-form.

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Filing through an online portal may come with a number of benefits such as fast processing, accuracy, convenience, time saving and so on.

However always remember a professional involvement gives significant value for small fees & there should be a maker and checker who are professional to make filing error free and lower chance to receive Income Tax Notice later

7 reasons why you should avoid filing your ITR free on private online portals with out human intervention

1. Lack of Data Privacy

Nearly every transaction you make (online or offline) involves handing over some form of personal data. A number of documents are required to be submitted while filing ITR such as:

  • Form 16
  • Interest certificates from banks and post office
  • Form-16A/Form-16B/Form-16C/Form-16D
  • Form 26AS
  • Tax-saving investment proofs
  • Documentary proofs to claim deductions under section 80D to 80U
  • Home loan statement from bank/NBFC
  • Bank account details
  • Aadhaar card
  • Salary Slips

This data required is extremely crucial and if fallen in the wrong hands can be severely misused. There’s a lucrative black market for data, and hackers often sell information in bulk to professional scammers. One should not make the mistake of thinking that data protection laws and the online platform will keep your data safe and unreachable.

While you may never be 100% protected against scammers, you can significantly decrease your chances of intrusion by making an effort to stay informed and following the latest recommended safety tips and avoiding such private online filing portals.

2. Leakage of Crucial Income Tax data if the server is not encrypted

Data leakage is the unauthorized transmission of data from within an organization to an external destination or recipient. The term can be used to describe data that is transferred electronically or physically. Data leakage threats usually occur via the web and email, but can also occur via mobile data storage devices such as optical media, USB keys, and laptops.

Data leakage, also known as low and slow data theft, is a huge problem for data security, and the damage caused to any taxpayer can be serious. If the online portal’s filing website has allegedly left one of its download URL unprotected or utilised proper encryption, it would in turn expose sensitive taxpayer data.

The personal and confidential income tax information when compromised and no satisfactory response regarding status of the investigation was provided, would lead to severe consequences on the taxpayer. It is essential for the protection of confidential financial data which is filed by millions of taxpayers from getting into the wrong hands.

3. Data collected by free online return filing portals might be misused

Data misuse is the inappropriate use of data as defined when the data was initially collected. Income tax information collected intended for the return filing purposes can be misused and exploited by unethical people or businesses to take benefits of vulnerable people or discriminate against a group of people.

The portal may use your information to cross sell other products such as mutual funds or insurance, under the guise of ‘saving tax’. It is not wrong to save taxes buying certain investments, but it is better to evaluate whether your existing investments or expenses are eligible for tax deduction.

This would lead to unnecessary calls from insurance agents or Mediclaim agents as they would possess your income and insurance details. This is not just breach of privacy but also would lead to continuous harassment by people trying to sell their products to you based on your income details.

4. Sharing of income related data can lead to cases of identity theft

Identity theft occurs when someone uses another’s personally identifying information, like their name, identifying number, or credit card number, without their permission, to commit fraud or other crimes. Identity theft is the crime of obtaining the personal or financial information of another person for the sole purpose of assuming that person’s name or identity and can make transactions in your name without your knowledge.

One of the major identity theft categories is tax identity theft. The most common method is to use a person’s authentic name, address, PAN and Aadhar to file a tax return with false information, and have the resulting refund direct-deposited into a bank account controlled by the thief.

The thief in this case can also try to get a job and then their employer will report the income of the real taxpayer, this then results in the taxpayer getting in trouble with the Income Tax Department. The person whose identity has been assumed may suffer adverse consequences, especially if they are held responsible for the perpetrator’s actions. 

5. No maker checker control while filing returns through free portals

Maker-checker is one of the central principles of authorization in the information systems of financial organizations. The principle of maker and checker means that for each transaction, there must be at least two individuals necessary for its completion. While one individual may create a transaction, the other individual should be involved in confirmation/authorization of the same. Here the segregation of duties plays an important role. In this way, strict control is kept over system, software and data.

However, while using free online portals for return filing, the portal will accept any information while return filing from the taxpayer, whether the information is accurate or not. So, if the taxpayer has by mistake provided incorrect information, such wrong information will be blindly considered by the portal. Lack of maker checker controls in place will lead to the wrong filing of ITR’s.

6. Forget to provide necessary information in ITR

Not many people are aware that there exist certain types of income for which your income tax liability is zero and the same is not required to be reported while filing ITR if your tax liability is zero. These incomes comprise of:

  • Agricultural income
  • Receipts from Hindu Undivided Family
  • Interest income on savings bank
  • Shares from a partnership firm
  • Income from gratuity
  • Amount received under voluntary retirement

 If the taxpayer is not aware that these incomes are exempt, he will provide such information to the return filing portal, which would in turn might get leaked or misused.

A Professional can always help you to file Correct ITR for Nominal Fees

7. Validation of taxpayer information done rarely

It is always important to verify and validate your information before filing income tax returns. However, validation of information is rarely done by such online portals while filing income tax returns. If taxpayer information is not verified by the website filing the return, it woul eventually lead to filing incorrect returns.

In case the portal files the income tax return in a wrong form (which means ITR form which is not applicable to him/her), the tax officer, while processing the ITR form, may consider the return so filed as defective return under the provision of section 139(9) of the Income Tax Act. In that case, the tax office may intimate about the defect and the taxpayer will require to remove the defect within 15 days of such notice by filing a revised return with the correct ITR form. If the defect is not removed within 15 days, the ITR return will be treated as invalid. Consequently, the person may face penalties for non-filing of ITR in addition to payment of interest under Section 234A for the delay in filing the tax return.

Generally, taxpayers should avoid online portals if they have only a few income sources, and instead go to the official income tax department’s website. Sharing your private information to an intermediary without any consideration has its risks. 

Considering that ITR-1 form is now pre-filled with all the income details, there is no good reason for those with one or two sources of income to go to an online tax portal. But users with multiple sources of income, who find it challenging to navigate the ITR forms or calculate the total income, can consider filling their returns by paying a fee to a tax consultant.

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