5 Mistakes to Avoid When Filing Your Taxes This Assessment Year

5 Mistakes to Avoid When Filing Your Taxes This Assessment Year

Filing your taxes can often feel like navigating a labyrinth of documents, rules, regulations, and potential pitfalls. However, armed with the right knowledge, you can successfully steer clear of costly mistakes that could jeopardize your finances or even trigger a tax notice. In this blog, we will explore five common errors that taxpayers often make while filing their taxes, providing you with invaluable insights on how to avoid them. Whether you’re a seasoned taxpayer or a first-timer, this guide will empower you to ensure a smooth and stress-free tax filing experience. So, let’s delve into the five mistakes you need to sidestep to conquer tax season like a pro.

Filing your returns: Let’s begin with the filing aspect itself. Many people might assume they are not required to file taxes if their rough calculations show that the tax liability for a financial year would be nil. However, it is important to file your returns if your taxable income (before claiming any deduction) exceeds the basic exemption limit (2.5 lakhs if you are below 60).

CategoryBasic Exemption Limit#
Individual/ HUF (Resident/ NRI)2,50,000
Resident Senior Citizen (60 years or more but less than 80 years)3,00,000
Resident Super Senior Citizen (80 years or more)5,00,000
# The above table shows the basic exemption limit in the old tax regime. Under the new tax regime, the basic exemption limit is 3 lakhs, irrespective of your age.

Apart from the basic exemption limit criteria, certain situations make it mandatory to file an ITR:

  • If any of the following situations are applicable to you, you need to file an ITR:
    • You have an asset outside India
    • You have a financial interest in any entity located outside India
    • You have earned income from a source outside India during the year
    • You have a signature authority in any bank account located outside of India
  • If you want to claim a refund of the excess TDS/TCS
  • If you have incurred losses during the financial year and wish to carry it forward to the next financial year, you need to file the return. 

Further, submitting an income tax return on time is also important. For individuals, the deadline for filing returns for the previous year is 31st July. Filing returns after the deadline can lead to certain penalties like the ability to carry forward losses to the following year, late filing fees, and interest @ 1% per month on tax payable. Besides, the procedure for receiving refunds is also delayed.

Not reporting all the income under the head “Income from other sources”: Many taxpayers overlook or fail to mention certain sources of income under the category “Income from other sources” in their tax returns due to a lack of awareness. Incomes like FD/RD interest, interest from savings bank accounts, dividends from equity shares or mutual funds, bond coupons, and other kinds of interest income all form part of the head “Income from other sources”. These details can be aggregated from AIS (Annual Income Statement), which can be downloaded from the income tax portal or by requesting the interest statement from the entity where your deposits are held. By reporting this income, you can also claim a refund for excess TDS that was deducted by the bank or company.

Besides this, you should know that interest incomes are taxable on an accrual basis. It is necessary to report the interest income every year to the Income Tax Department under the head “Income from other sources.”

Skipping Capital gains:  If you have sold any shares in the previous year or switched/redeemed any mutual fund units, or sold any jewellery, land, or building in the past year, these are taxable under the head capital gains. Capital gains can be either short-term or long-term in nature. Basically, capital gains are the gain/loss realised from selling a capital asset. For reporting capital gains from financial assets like equity shares or mutual funds, you can simply request a capital gains statement from RTAs like CAMS/KFINTECH or from your Depository Participant. For purposes like a land/building sale or jewellery sale, you may have to calculate the gains after consulting with a tax expert. 

Reporting capital gains is also important, as discussed above if you have realised capital losses. If you do not report the losses, you will lose the benefit of carrying these forward for the next 8 assessment years.

Not disclosing exempted income: You should ensure that all sources of income, including exempt income, are included in your ITR forms. Exempt income, such as long-term capital gains (LTCG) on shares or equity mutual funds up to Rs. 1 Lakh, maturity pay-outs from life insurance policies, PPF withdrawals, gifts from relatives, EPF withdrawals, and more, are often overlooked as they are tax-exempt. However, these incomes should be reported as it provides accurate information in the ITR and also serves as evidence supporting subsequent investments you make, thereby helping you avoid notices from the tax department.

Forgetting to Verify IT Returns: Your tax return filing doesn’t end with the submission of ITR alone. It is mandatory to verify the return within 30 days of filing because the Income Tax Department will not process your tax return without verification. You have two options for verifying ITR V: offline verification by sending the ITR V (Acknowledgement) to CPC Bangalore via post or online verification through Aadhaar OTP, EVC, etc.

Unfortunately, many individuals fail to complete this verification process. Without verifying the ITR V, your tax return will not be considered filed, and the department will send a notice declaring your return as “Invalid.” If you do not respond to the notice within the given timeframe, the income tax department will treat it as if you have never filed a return. As a result, penalties and non-filing fees will be applicable for not filing the ITR.

If you have a question, share it in the comments below or DM us or call us – +91 9051052222. We’ll be happy to answer it.

~Nischay Avichal

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