The deadline to file income tax return (ITR) has been extended to August 31, 2019. However, while filing your tax return, you should do it with utmost care. If you make a mistake, you could end up with a tax notice from the department asking you to explain the discrepancy and pay tax, if any.
Here are eight mistakes that are often made by taxpayers.
1. Filing ITR using the wrong form An individual is required to report all the sources of income that are taxable and tax-exempt using the correct ITR form applicable to him/her. If the ITR is filed using the wrong form, then the return will be termed as 'defective'. You will then have to file a revised return using the correct form.
An individual can determine which form is applicable to him for filing ITR depending on the sources from which income is earned in the financial year.
For instance, ITR-1 is applicable to an individual who has earned income from salary/pension, has only one house property and interest income. However, if a person has incurred any long-term capital gains (LTCG) by selling of equity shares and equity mutual funds, then he/she has to file ITR-2.
Abhishek Soni, CEO, tax2win.in, an ITR filing website says, "While filing ITR, the taxpayer should ensure filing of return via correct income tax return form. In case taxpayer uses the wrong form for filing ITR, tax department may serve a notice of defective return under section 139(9) to the taxpayer. For instance, if a salaried person has his/her TDS deducted under section 194J (for professional income) along with TDS on salary income under section 192, income in respect of TDS deducted u/s 194J should be shown as income from business/profession and consequently ITR 3 or 4 would have to be filed. However, if the person files ITR 1 in the instant case, the return may be treated as defective return by the income tax authorities."
2. Not reporting incomes from investments A taxpayer is required to report all the income from investments such as interest income from fixed deposits (FDs), capital gains arising from sale of mutual funds or any other asset. Individuals generally forget to report interest earned from savings bank account, fixed deposits, recurring deposits, etc. under the head 'Income from other sources'.
From this year, individuals are also required to report and pay tax, if any, on LTCG arising from the sale of equity shares and equity mutual funds.
Similarly, while interest received or accrued on fixed and recurring deposits is fully taxable, however, one can claim a deduction on interest earned from savings bank account up to a certain limit.
Section 80TTA of the Income Tax Act provides that interest up to Rs 10,000 can be deducted from the total interest earned in a year from bank and post office savings account for individuals below the age 60 years.
On the other hand, senior citizens can claim deduction of up to Rs 50,000 for the interest received or accrued under section 80TTB. The interest under section 80TTB can be earned from deposits held with bank such as FDs, recurring deposits (RDs), savings account, post office schemes like time deposits, Senior Citizen Savings Scheme and so on. Deduction can also be claimed for interest from deposits held with co-operative banks.
3. Not reporting exempt income in ITR Income tax laws requires a taxpayer to report all their income, whether exempt from tax or not. It is mandatory for a taxpayer to file his/her ITR if the gross income exceeds Rs 2.5 lakh.
Soni says, "As per section 139(1) of the Income Tax Act, if the gross total income of an assessee exceeds the basic exemption limit, he/she has to file ITR for the relevant year. Exempt income usually doesn't form part of the gross total income; hence it would not be mandatory for the assessee to file the ITR for FY 2018-19. However, the income tax department may serve you a notice to check the nature of income and whether it is exempt or not as per provisions of the law."
Do remember that even if your gross total income does not exceed the basic exemption limit you are required to file ITR in certain situations. Soni says, "Resident individuals are mandatorily required to file their income tax return even if the gross total income is below the basic exemption limit if they are holding assets outside India, have interest in any asset outside India or if they are authorised signatories for account located outside India. For instance, if you had gone outside India on deputation or employment and had opened a bank account and forgot to close it. This applies to you even if there is no money left in the bank account there. Likewise if you have invested in shares, bonds or mutual fund of foreign companies, you are required to file ITR irrespective of your income level for the year. In case you have received employee stock options (ESOPs) from a foreign company which is holding company of your Indian employer, then also you are required to file ITR."
4. Not clubbing incomes According to the Income Tax Act, there are certain instances where the taxpayer is required to club the income of his minor child or spouse with his income and pay taxes accordingly.
As per the provisions of the Income Tax Act, an assessee is required to mandatorily club income in certain cases with his/her total income. If an assessee does not include the income to be clubbed in his/her ITR, the department may serve a notice to the assessee for under reporting of income and the assessee would be liable to pay tax, interest and penalty on the same," says Soni.
5. Not reporting income from the last job If you have switched jobs in FY 2018-19, then income from your previous job must be reported while filing ITR along with income from the current job. If any income (from previous job) is not reported, then a discrepancy is bound to reflect in your TDS certificate (Form 16) and Form 26AS. The tax department can send you a tax demand notice asking you pay additional tax dues, if any.
Do keep in mind that the new format of Form 16 has a row where income from other employers can be reported by your current employer. Therefore, do check if the Form 16 received from your current employer includes such income.
6. Not reporting all bank accounts While filing ITR for financial year 2014-15 onwards, a taxpayer is required to report all the bank accounts held by him. Earlier, you were only required to mention a single bank account where you wanted to receive credit of the income tax refund, if any. However, now only dormant accounts are excluded from requirement of reporting in the ITR.
7. Not declaring deemed rent/expected rent If you own another house apart from a self-occupied house and it is lying vacant, then you are required to report the expected rent in your gross total income.
Remember the exemption of paying no tax on notional rent from second house has come into effect from FY 2019-20 therefore, will be applicable while filing ITR next year.
While filing ITR for FY 2018-19, you are required to report such income and pay tax, if any. In case loss has occurred due to interest payable on housing loan, then maximum set-off of loss from house property has been capped at Rs 2 lakh in a financial year.
8. Failing to revise your income If you have discovered an error after filing your tax return, then you must rectify your mistake. You must file the revised return to rectify your mistake. An individual can file the revised return within one year after the expiry of relevant financial year. The last date to file revised return for FY 2018-19 is March 31, 2020.