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Common mistakes, filing income tax return
July, 23rd 2009

With less than ten days to go for July 31, 09, the countdown for the annual ritual of filing tax return has begun for individual salary taxpayers and small businessmen (i.e. having annual turnover less than Rs. 40 lakhs). While, early birds like Rahul are relieved as they have filed their returns well before the time, others are just about to pick up their bank statements and Form 16, wondering, if there is enough time to meet the deadline. While rushing through the formalities, it may be worthwhile to keep some points in mind to avoid committing mistakes, which may get one into the bad books of the Tax Department.

Use the right form

One may sorely miss the old 'one size fits all' SARAL forms for the sheer ease and convenience of filling up the one page return, but they were not e-friendly. It was also cumbersome to attach a whole lot of supporting documents and spend a day away from the office waiting in the queue outside Tax Department to file the return. The new ITR series forms, though, lengthy are designed for uniform structure of data, which facilitates speedier processing of the refund claims. They are not required to be supported by any annexures (including TDS certificates). The biggest advantage of the new forms is that now one need not wait in queue outside the Tax Department but, can e-file the returns from the comfort of his office or home and yes, for those who prefer to burn the midnight oil, it is possible to upload the returns even at midnight.

Rahul mentions he filled up ITR-2 since, he has house property income and short term capital gains income (but no business income) in addition to salary and interest income. However, if one has only salary and interest income, the correct form is ITR-1. Rahul's friend Sachin has income from freelancing and trading in computer parts (i.e business income). He would need to fill up ITR-4, which is the form applicable for individuals and HUFs having business income from proprietary business or profession.

Early this month, the Finance Minister has assured us in his budget speech that he has asked the Tax Department to work on SARAL II forms. If they do come up with it by next year, Rahul plans to go for a short monsoon vacation making the best use of the time saved. Until then, we need to contend with the current ITR series forms.

Acknowledgement of return 

For tech savvy people like Rahul who file their returns on-line, the process has been made even simpler. As per the new procedure, even those who have uploaded the e-return without digital signature the need to visit Tax Department has been eliminated.

Until last year, signed hard copies of acknowledgements (ITR V) of e-returns filed without digital signature were required to be submitted to the Tax Department to validate the e-returns. However, in the current year, the acknowledgements need to be sent by ordinary post (not by courier or speed post) to Centralised Processing Centre at Bengaluru. However, one should make it a point to post the signed acknowledgements within thirty days of uploading the return lest your e-return is treated as invalid.

But how does then one know whether his e-return has been validated? Rahul explains that the receipt will be confirmed over an e-mail and can also be checked from e-filing website. This eliminates the need to carefully preserve the hard copy.

For those who have doubts on the new technology and have the advantage of ample time in hand, option of filing hard copy of the ITR form is still open.

Show how you spent your money

Rahul points out that there is an innocuous looking column in the ITR series forms captioned 'Other Information (transactions reported through Annual Information Return)'. This column requires data of significant investments made during the year, transactions of immoveable property, cash deposits and credit card expenses aggregating or exceeding the amounts mentioned in the table below :

Nature of transaction
IPO of shares
Rs. 1 lakh
Units of mutual fund
Rs. 2 lakhs
Bonds or debentures issued by a company/institution or RBI
Rs. 5 lakhs
Immoveable property
Purchase or sale of immoveable property
Rs. 30 lakhs
Cash deposit
Cash deposit in single savings bank account
Rs. 10 lakhs
Credit card expenses on a single credit card
Rs. 2 lakhs








by secondary sources like banks, mutual funds, IPO issuing companies, RBI and Registrar of Properties and matches it with data filed by taxpayers to keep a tab on the movement of capital. Unreconciled data leads to in-depth investigation by the Tax Department and helps them dig out unaccounted money.

Filling up the AIR data correctly and completely ensures that your meeting with your Assessing Officer (in case your return is picked up for scrutiny) is free of any embarrassment and discomforting questions.

What about other incomes?

A very common mistake, while filling up returns in a rush to meet the deadline is non-disclosure of incomes other than salary - cautious Rahul, makes it a point to prepare a summary of all his bank accounts before filling up the return. Apart from savings bank interest, there may be house property income, accrued interest on Fixed Deposits, Bonds and debentures, National Savings Certificates, long term or short term capital gains and the like. While, claiming credit for tax deducted on such accrued incomes or claiming 80C deduction for NSC accrued interest, care should be taken to include the corresponding incomes also in the Total Income.

Taxable incomes earned on investments made in the minor child's name is another aspect that people miss-out on. Under the clubbing provisions of income tax, minor's income is required to be included in the income of the parent whose income is higher. Further, monetary gifts received from non-relatives are also taxable, if they exceed Rs. 50,000/- in the aggregate during the year.

Missing out on disclosing such incomes may expose the taxpayer to adverse action by the Tax Department by way of recovery of tax with interest and penalty all of which put together may even exceed the undisclosed income.

Partners in profits, not in losses

Rahul's friend Sachin burnt his fingers in trading in computer parts, while, working as hardware engineer in a company. He was wondering whether the business loss can be set off against his salary income. Unfortunately, under the set off provisions of income tax, business loss cannot be set off against salary income. However, such loss can be set off against capital gains or income from other sources of the same year. Further, if any part of such loss remains unabsorbed, it can be carried forward to future years (not more than eight years) for set off against business income in those years.

The provisions in respect of capital loss are more stringent and do not permit set off in current year against income under any other head (except capital gains). Carry forward for eight years is, however, possible for set off against income under same head.

The dream house gone sour

Sachin had booked a flat in an under construction building by availing a housing loan from a bank. He was expecting possession of the flat during the year. Unfortunately, as the real estate prices started crashing, the builder defaulted on his commitment and Sachin is yet to get the possession of the flat. Meanwhile, he is repaying the loan in monthly installments to the bank. Ordinarily, interest paid for acquisition or construction of house is allowed as deduction from income from house property subject to limit of Rs. 1,50,000 in case of self-occupied property. Sachin wonders whether he can take the benefit of interest deduction by offering some nominal notional value of property under construction. Unfortunately, the income tax law does not permit him to do so. But, the silver lining is that the interest payable upto the financial year prior to year of acquisition can be accumulated and amortised deduction can be claimed over five years starting from the year of acquisition.

Oops... Sorry, I stand corrected

Its only humane to err. Though, one may like to be as systematic as Rahul, often some mistakes are discovered after filing of the return. Does it mean exposure to adverse consequences under income tax law? Relax. Income tax provisions do recognise this and permit filing of a revised return, if some errors are noticed subsequent to filing of the return. The revised return can be filed before the expiry of two years from the end of relevant financial year i.e. revised return for F.Y. 2008-09 can be filed till 31 March 2011.

While, there cannot be an exhaustive list of common mistakes while filing return, the above may provide some useful guidance to an individual taxpayer.

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