While claiming deductions, it is important to have proper knowledge of tax rules. Getting a tax notice, that too after paying taxes and filing the ITR, is the last thing you would want. But it happens.
Over the last few years, income tax return (ITR) filing has become a completely online process. However, as you are required to fill various details and follow different steps while filing your ITR, there are chances of making mistakes or filling the wrong information. For instance, you may choose a wrong ITR form altogether, miss reporting an income, fill incorrect self-assessment tax challan details or incorrect TDS (tax deducted at source) details, tax deduction account number or any other detail; all these can get you a tax notice.
Let’s look at the most common mistakes you could make and how to avoid them.
Selecting the wrong ITR form
Choose the ITR form that is applicable to you. “The government has prescribed different ITR forms for different classes of taxpayers, depending on their residential status, heads under which their sources of income fall, level of taxable income, holding shares/ directorship in a company or member in a Partnership firm, etc. Often, taxpayers tend to ignore some of these conditions and select an incorrect form inadvertently,” says Shailesh Kumar, Partner, Nangia & Co LLP. So, selecting the appropriate ITR form is very important. If you file your return in the wrong ITR form, it is considered as invalid or not filed at all, and in such cases, you may get a notice from the tax department.
Missing out an income
The other common mistake most tax filers make is ignoring certain incomes. Your employers deducts taxes and gives you Form 16. But is that the only income you’ve earned? A simple savings bank balance earns you interest. That too is taxable. Your investment, however small, must also be declared: your Form 16 may not have covered it.
“Sometimes, taxpayers, especially the salaried, tend to file their ITR mainly based on the Form 16 or TDS certificate issued by their employers. They inadvertently miss out on other sources of income, such as interest income. Such details need to be collated and kept handy while filing the ITR form,” says Kumar. While assessing a tax return, the tax department may notice the missing income and send you a demand notice.
Mismatch in tax credit
This means there is a difference between the amount of tax credit you have claimed in your tax return and what is available in the records of the income tax authorities. There could be various reasons for the mismatch. One could be that you filed wrong information; or, TDS may not have been deposited with the department by the deductor or is not reflected in your Form 26AS. So, to avoid getting a tax notice, cross check the tax deducted from your income with the TDS reflecting in Form 26AS. If there is a mismatch, get it rectified before filing your tax return.
There are various tax deductions available to income tax assessees under different sections such as 80C, 80D and 24(b). These deductions are available for investments or expenses. Besides these, there are various rules and limits to consider while calculating deductions and exemptions. However, “many times, taxpayers claim an incorrect amount or deduction under an incorrect section due to lack of technical knowledge, which results in variation of their tax liability,” says Kumar. As a result, tax notices become inevitable. So, while claiming deductions, it is important to have proper knowledge of tax rules. If you face problems, it is advisable to consult a tax expert or chartered accountant.
Not filing tax return
Not filing a tax return when you are supposed to, certainly increases the chances of receiving a tax notice. Remember, if your gross income is above the basic exemption limit—up to Rs 2.5 lakh for individuals below the age of 60 years, Rs 3 lakh for those between the age of 60 and 80, and Rs 5 lakh for those above 80—you should file your tax return. There are other criteria too that make it mandatory to file a tax return.
Moreover, you should file your return before the due date. This year the due date has been extended to 31 November 2020. You can file a return even after that, till March 31, 2021, but with a penalty. A return cannot be filed once the assessment year gets over, i.e., March 31.
While we tend to make mistakes, postponing things till the last moment further increases the chances of making errors. So, hurry and file your tax return as soon as possible and avoid making the above mentioned mistakes.