ITR myths that can cost you big: Don’t fall for TDS, gift or crypto loophole traps
As ITR filing for FY 2024–25 gathers momentum, a large number of taxpayers—ranging from salaried professionals and gig workers to small business owners—are getting caught in a web of tax myths that could cost them dearly.
- Jul 15, 2025,
- Updated Jul 15, 2025 1:37 PM IST
As the filing of Income Tax Returns (ITR) for the financial year 2024-25 picks up speed, a significant number of taxpayers, including salaried employees, gig workers, and small business owners, are falling prey to prevalent tax myths. These misconceptions can lead to penalties, delayed refunds, and an increased risk of scrutiny by the tax department. A thorough understanding of the Income Tax Act, 1961, is vital to navigate these pitfalls effectively.
One of the most common myths is that if Tax Deducted at Source (TDS) has been deducted, there’s no need to file an ITR. This is incorrect. As per Section 139(1), individuals whose gross income exceeds Rs 2.5 lakh (for those under 60), Rs 3 lakh (60–80), or Rs 5 lakh (80+) must file a return, regardless of TDS. TDS under Section 192 is only an advance on the tax payable—it doesn’t exempt you from filing. Without filing ITR, you also can’t claim refunds on excess TDS, and it could affect your eligibility for loans, visas, or other financial services.
Another widely held belief is that if you owe no tax, you don’t need to file. But under the seventh proviso to Section 139(1), even those with no taxable income must file if they meet certain criteria—such as depositing over Rs 1 crore in a current account, spending more than ₹2 lakh on foreign travel, or paying electricity bills exceeding Rs 1 lakh in a financial year. Filing under these conditions helps build a credible financial history.
Many also wrongly assume that all gifts are tax-free. Section 56(2)(x) mandates that gifts exceeding ₹50,000 in a year are taxable unless received from specified relatives like parents, siblings, or your spouse. Gifts from friends or extended family are not exempt. Even if gifts qualify for exemptions under special circumstances like marriage or inheritance, they must be reported in your ITR.
There’s also confusion around virtual digital assets. Profits from cryptocurrencies are taxed at a flat 30% under Section 115BBH, and losses cannot be set off. Still, such losses must be reported to stay compliant. Additionally, Section 194S requires a 1% TDS deduction by the buyer, leaving a digital trail that the tax department can trace.
Freelancers often believe foreign income via PayPal, Stripe, or direct transfers isn’t taxable—but that’s false. Under Section 5(1), residents and ordinary residents must declare global income, and Schedule FA mandates disclosure of all foreign assets. Failing to do so can invite steep penalties under the Black Money Act, 2015.
Crackdown on fraudulent ITR claims
Meanwhile, the Income Tax Department has launched a massive crackdown on fraudulent ITR claims. A verification drive launched on July 14, 2025, revealed over 40,000 taxpayers had filed inflated claims with the help of rogue agents, resulting in an additional Rs 1,045 crore in taxes. The department found fabricated claims under key sections like 80C, 80D, 80E, 80G, and others—many filed using disposable email addresses and fake documents. These refund rackets have thrived despite digital tax systems, primarily due to taxpayer ignorance and a growing black market of unscrupulous ITR preparers.
The operation exposed organised networks of rogue preparers and intermediaries, often using fake email IDs to file mass returns and then abandoning them, leaving taxpayers clueless about departmental notices. Despite the government's digital tax ecosystem, officials say poor awareness and false promises of big refunds continue to trap even high-earning professionals. Backed by AI analytics, financial data, and field intelligence, investigators have uncovered digital trails and seized evidence linking taxpayers to fake claims.
The rise of such refund rackets underscores the importance of clarity and caution in tax filing to avoid legal complications and maintain financial integrity.
In short, clarity and caution are your best allies this tax season. Filing your ITR accurately—even in cases of low income, capital losses, or global earnings—can help build long-term financial credibility and keep you on the right side of the law.
As the filing of Income Tax Returns (ITR) for the financial year 2024-25 picks up speed, a significant number of taxpayers, including salaried employees, gig workers, and small business owners, are falling prey to prevalent tax myths. These misconceptions can lead to penalties, delayed refunds, and an increased risk of scrutiny by the tax department. A thorough understanding of the Income Tax Act, 1961, is vital to navigate these pitfalls effectively.
One of the most common myths is that if Tax Deducted at Source (TDS) has been deducted, there’s no need to file an ITR. This is incorrect. As per Section 139(1), individuals whose gross income exceeds Rs 2.5 lakh (for those under 60), Rs 3 lakh (60–80), or Rs 5 lakh (80+) must file a return, regardless of TDS. TDS under Section 192 is only an advance on the tax payable—it doesn’t exempt you from filing. Without filing ITR, you also can’t claim refunds on excess TDS, and it could affect your eligibility for loans, visas, or other financial services.
Another widely held belief is that if you owe no tax, you don’t need to file. But under the seventh proviso to Section 139(1), even those with no taxable income must file if they meet certain criteria—such as depositing over Rs 1 crore in a current account, spending more than ₹2 lakh on foreign travel, or paying electricity bills exceeding Rs 1 lakh in a financial year. Filing under these conditions helps build a credible financial history.
Many also wrongly assume that all gifts are tax-free. Section 56(2)(x) mandates that gifts exceeding ₹50,000 in a year are taxable unless received from specified relatives like parents, siblings, or your spouse. Gifts from friends or extended family are not exempt. Even if gifts qualify for exemptions under special circumstances like marriage or inheritance, they must be reported in your ITR.
There’s also confusion around virtual digital assets. Profits from cryptocurrencies are taxed at a flat 30% under Section 115BBH, and losses cannot be set off. Still, such losses must be reported to stay compliant. Additionally, Section 194S requires a 1% TDS deduction by the buyer, leaving a digital trail that the tax department can trace.
Freelancers often believe foreign income via PayPal, Stripe, or direct transfers isn’t taxable—but that’s false. Under Section 5(1), residents and ordinary residents must declare global income, and Schedule FA mandates disclosure of all foreign assets. Failing to do so can invite steep penalties under the Black Money Act, 2015.
Crackdown on fraudulent ITR claims
Meanwhile, the Income Tax Department has launched a massive crackdown on fraudulent ITR claims. A verification drive launched on July 14, 2025, revealed over 40,000 taxpayers had filed inflated claims with the help of rogue agents, resulting in an additional Rs 1,045 crore in taxes. The department found fabricated claims under key sections like 80C, 80D, 80E, 80G, and others—many filed using disposable email addresses and fake documents. These refund rackets have thrived despite digital tax systems, primarily due to taxpayer ignorance and a growing black market of unscrupulous ITR preparers.
The operation exposed organised networks of rogue preparers and intermediaries, often using fake email IDs to file mass returns and then abandoning them, leaving taxpayers clueless about departmental notices. Despite the government's digital tax ecosystem, officials say poor awareness and false promises of big refunds continue to trap even high-earning professionals. Backed by AI analytics, financial data, and field intelligence, investigators have uncovered digital trails and seized evidence linking taxpayers to fake claims.
The rise of such refund rackets underscores the importance of clarity and caution in tax filing to avoid legal complications and maintain financial integrity.
In short, clarity and caution are your best allies this tax season. Filing your ITR accurately—even in cases of low income, capital losses, or global earnings—can help build long-term financial credibility and keep you on the right side of the law.