Beware of tax notice! Here's what you should not do while filing income tax returns

As the July 31 deadline for filing Income Tax Returns (ITR) approaches, the risk of making mistakes looms large. Any oversight can result in costly penalties or tax notices from the income tax (I-T) department. On Monday, Union Finance Minister Nirmala Sitharaman said that the central government has dispatched 100,000 notices to taxpayers for various reasons encompassing non-filing of returns, under-reporting of income, and misrepresentation of income. These notices were particularly aimed at individuals with income close to Rs 50 lakh. To prevent such issues, exercising caution during the ITR filing process is crucial, as any discrepancies might require you to file a revised ITR, as advised by Income-tax Officers.

To help you navigate through the process of filing income tax return without any hassle, here are some common mistakes to avoid:

Choosing Incorrect ITR Form: Carefully select the appropriate ITR Form based on your income nature and taxpayer category. Using the wrong form could render your return defective and necessitate correction within the specified timeframe. For instance, salaried individuals should file ITR Form-1, while those with income from capital gains need to use ITR Form-2.

Ignoring Form 26AS and TDS Certificate: Thoroughly verify Form 26AS before filing your ITR. This document includes vital income details, tax deductions, advance tax payments, self-assessment tax, and eligible tax credits. Cross-checking Form 26AS with Form 16 is essential to spot any mismatches in the provided details and calculations. Additionally, verify the information with the Annual Information Statement (AIS). Both documents can be downloaded after logging into the income tax website. 

Ignoring High-Value Transactions: If your reported income does not align with significant financial activities, such as property purchases or substantial credit card bills, the I-T department may issue a notice. They may seek an explanation regarding the source of funds used for these transactions. To avoid discrepancies, ensure consistency between your spending and reported income.

Bogus Deductions and Claims: Avoid claiming deductions that do not apply to you. For instance, claiming deductions like House Rent Allowance (HRA) or Section 80C without proper reflection in your Form 16, issued by your employer, can draw the tax department's attention. This might lead to an investigation into the authenticity of such claims. Be cautious and truthful in your deductions.

Providing Inaccurate Personal Information: Exercise caution while furnishing personal details, such as name, address, email ID, phone number, PAN, and date of birth in your return. Ensure that these details match the actual and latest information. Failing to provide correct bank details can lead to delays in receiving entitled tax refunds.

Missing Due Date: File your ITR before the due date of July 31 to avoid penalties, which may include a late filing fee of up to Rs 5,000-Rs 10,000 and a penal interest rate of 1 per cent per month on unpaid taxes. Delayed filing can also result in extended wait times for tax refunds.

Not Disclosing All Income Sources: Comply with the requirement to disclose all sources of income while filing your ITR. Even if you are a salaried individual, you must declare any other income, including those exempt from tax. Many taxpayers inadvertently omit details of exempt income due to a lack of awareness.

Selecting the Incorrect Assessment Year: When filing your tax return, ensure you choose the appropriate assessment year, which follows the financial year during which the income was earned. For ITR this year, the Financial Year will be 2022-2023 and Assessment Year will be 2023-2024. 

By being diligent and avoiding these common mistakes, you can make the ITR filing process smoother and steer clear of penalties and tax notices from the Income Tax Department.