10 mistakes to avoid in filing Tax Returns for Salaried
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 due date for filing of tax returns for individual taxpayers is 30th September 2021. Putting it off until the last minute and filing it in a hurry can lead the taxpayer to disclose incorrect information which might have a negative impact on the outcome of filing of returns. E-filing of a tax return is mandatory from FY 2016-17 onwards if you have a refund claim in the return or have a total income of more than Rs. 2,50,000. In this article we will learn about the various mistakes salaried person commit while filing Income Tax Return.
Below are the 10 mistakes to avoid while filing ITR:
1. Forget to include Saving Interest
It has been observed that many people get their ITR filed through an ITR filing facility either online or offline. These ITR filers file the ITR just on the basis of form No. 16 without considering other income in the ITR like saving bank interest, interest on NSC etc. Though interest on saving account enjoys deduction upto Rs. 10,000/- but the correct process to claim this deduction is to first show it in your income and then claim deduction under Section 80TTA. Taxpayers generally do not show the saving bank interest in their ITR which is wrong. They carry an impression that such interest is fully exempt and need not be included in ITR and which is wrong as you have to pay tax on saving bank interest beyond ten thousand rupees. From FY 2019-20 the department is issuing clarification notice to taxpayers for not disclosing interest from saving bank account the notice mention that whether the taxpayer has made the transaction during the Financial Year, in the case the transaction has been executed by the taxpayer than he has to file revise return and pay the balance and in case the transaction has not been executed the taxpayer can disagree with the notice and file the reply on the common portal.
2. Not disclosing all bank account
It is mandatory to disclose all your bank accounts in your ITR. In case, you closed your bank account during the financial year, you are required to disclose it in your ITR. Usually, the bank account that is frequently used for transactions is the primary bank account. The bank account used for the transaction with the Income Tax Department is the primary bank account. From FY 2019-20 the department is issuing clarification notice to taxpayers for not disclosing bank account in the ITR.
3. Forget to cross check 26AS
Form 26AS statement provides a consolidated view of the total income earned by you as a deductee from various sources. It also includes the TDS/ TCS amount that has been deducted from your income and credited to Income Tax Department. Apart from tax deductions, you may also pay taxes by way of Advance Tax and Self Assessment Tax. All such tax related information appears in Form 26AS. There are various occasions where the TDS information in the TDS statement and consequently in Form 16 or 16A may differ from what is available in Form 26AS. Most common reasons for such mismatch(es) are listed below:
- Failure of the deductor to deposit TDS on time
- Incorrect amount entered in the TDS return
- Incorrect PAN quoted in the TDS return
- Mistake in the CIN (Challan identification number)
- The deductor’s PAN/TAN wrongly entered
- Mistake in the chosen Assessment year
- Omissions in the TDS return
- Incomplete details of the assessee in the TDS return
- Mismatch in the TDS quoted and the actual TDS deducted
More often than not, such mismatches can be attributed to wrong information provided in the TDS return. So, please approach your employer/deductor to file a revised TDS return after making the necessary corrections. The Income Tax department allows the assessee to mention the reason for mismatch in the online portal in answer to a Notice sent by the department.
4. Forget to claim 80D deduction
Every salaried employee must be familiar the way they get reminders by their employers to submit investment proof. Sometimes, they tend it postpone repeatedly, and finally end up missing the income tax proof submission deadline and thus it will not reflect in Form 16.
In case employee fail to submit medi claim receipt to the employer than the same can be considered in the Income tax return for claiming deduction. In case the employee has not yet exhausted the deduction limit under section 80D and have a bill for a preventive health check-up, you can claim this bill and get a maximum of Rs 5,000 as a deduction.
5. Ignoring P&L from share transaction
Assessment of income from transaction in shares and securities under the Income-tax Act 1961 involves multiple issues. Share transactions give rise to income assessable under different heads of income e.g. business income, capital gain and income from other sources. Many fail to disclose the share transaction in the Income tax return. The taxpayer are of the general perception that disclosure of profit and loss from share transaction is not necessary.
From FY 2019-20 the department is issuing clarification notice to taxpayers for not disclosing share transaction in the Income Tax Return the notice mention that whether the taxpayer has made the transaction during the Financial Year, in the case the transaction has been executed by the taxpayer than he has to file revise return and pay the balance and in case the transaction has not been executed the taxpayer can disagree with the notice and file the reply on the common portal.
6. Ignoring capital gain from sale of asset
Assessee is compulsorily required to disclose income under capital gain from sale of asset. Failure to disclose the transaction will lead to under reporting of income and invite penalty for under reporting of which is equal 50% of tax on income underreported. In case the assessee has mis reported the income the income than it will invite penalty for mis reporting of which is equal 200% of tax on income misreported.
From FY 2019-20 the department is issuing clarification notice to taxpayers for not disclosing the Capital Gain transaction in the Income Tax Return the notice mention that whether the taxpayer has made the transaction during the Financial Year, in the case the transaction has been executed by the taxpayer than he has to file revise return and pay the balance and in case the transaction has not been executed the taxpayer can disagree with the notice and file the reply on the common portal.
7. Failure to disclose gift received
Aggregate value of gifts received without consideration during a financial year (FY) would be taxable as other income in the hands of the recipient. However, if the aggregate value of such gifts is less than Rs 50,000, then it would be exempt from tax. For instance, if an individual receives gifts worth Rs 85,000 in a tax year, then he is required to pay tax on the full amount and the same will have to be adequately disclosed in the ITR. However, he will not be liable to pay tax if the aggregate value of gifts is less than Rs 50,000. Also, any gift you receive from a person who qualifies as a relative under the Income Tax laws is exempt from tax.
Many times taxpayers fail to report gift received from relative although the income is exempt but in order to avoid notice from department in future the assessee must disclosed the same in the Income Tax Return. It is also advised that in case the gift value is more than Rs. 2,00,000 the assessee on a safer side must prepare and keep Gift deed.
8. Forget to claim EPF withdrawal TDS
If you withdraw from EPF before completing 5 years of continuous service, TDS will be deducted. EPF payout has 3 components.
- Employee’s contribution: This is the amount contributed by you to your EPF. This portion of withdrawal is not taxable
- Interest on your/employee’s contribution: This portion is taxed as income from other sources.
- Employers contribution and interest on employer’s contribution: Employer’s contribution and interest on it is fully taxable. It is taxed under the head salary in your tax return.
In case the total withdrawal is more than Rs. 50,000 than TDS is deducted and balance PF is paid to the employee. In order to claim the TDS back the employee must file the return which in most of the case they fail to do the same. You can claim a refund on TDS of EPF withdrawal if your income is less than Rs.2,50,000 for the financial year. For this, show your EPF withdrawal as salary income and file your tax return.
9. Filing of wrong ITR form
Wrong ITR filing is quite common because the Income Tax Act prescribes a number of different forms for different combinations of income. There is a different form if you only have salary and interest income but you need to use a different form if you are having capital gains. Many times assessee files ITR 2 instead of ITR 1 and ITR 1 instead of ITR 2. ITR 1 is for resident Indians with income from salary, pension, other sources and having only one house and total income less than Rs. 50 lakhs per annum, whereas ITR 2 is for incomes over Rs. 50 lakhs per year or having capital gains or more than one house property or having directorship in a company or holding unlisted shares.
10. Failing to fill form in case of arrears of salary
Salaried employees may get arrears payment due to pay revision. In that case, the tax burden for the salaried employee may increase because of the burden of past dues paid in the current year. The Government has made provisions to provide relief to salaried employees in case of salary arrears in a particular year. The tax relief under Section 89 covers salary arrears and advance salary as well. The relief under section 89 can be claimed by furnishing particulars of income in Form 10E. Prerequisites to file Form 10E are valid user ID and password of e-filing portal.
It is mandatory to file Form 10E if you want to claim tax relief on your arrear/advance income. In the case of non-filing of Form 10E, the Income Tax Return will be processed but the relief claimed u/s 89 will not be allowed, even the details of the relief claim are entered in the ITR.