31st July 2017 is the last date for filing Income Tax Returns (ITR) for the Financial Year 2016-17 (Assessment Year 2017-18). Filing ITR can be a complex process and preparing for it last minute may result in mistakes that might have negative impact on your finances. Some non-disclosures and inaccuracies might also expose you to criminal charges.
To help you steer clear of any such risk, here is a list of some common mistakes people make while filing an ITR and how to avoid them-
1 – Not Reconciling TDS with Form 26AS
Form 26AS is a statement of your tax credit and contains complete information about taxes received by the Income Tax Department on your behalf in the form of TDS. It is very important to collect all the documents related to prepaid taxes and reconcile the same with Form 26AS before filing your ITR. While computing your income, you must keep the documents like Form 16 and Form 16A handy to match it against TDS Form 26AS.
2 – Choosing the Wrong ITR Form
The Central Board of Direct Taxes has specified different types of tax return forms for different types of assessees. An ITR filed using incorrect form will be considered as a defective return by the IT Department. Hence, you must know which type of ITR Form to use.
- ITR 1- Also known as Sahaj Form, this is to be used by an individual taxpayer who earns income through salary/pension and owns a single house property.
- ITR 2A- This ITR Form is to be used by a Hindu Undivided Family (HUF) or an individual taxpayer who has more than one house property.
- ITR 2- This form is to be used by individuals who have sources of income outside the country or those who have accrued income through the sale of an asset.
- ITR 3- This form is used by an individual who is partner in a firm but does not earn any income through the business conducted by the firm.
- ITR 4- This is to be used by individuals who run any type or size of business and earn income through the same.
- ITR 4S- This form is to be used by an HUF or an individual who earns income from business and has a single house property.
Some other criteria also apply to these forms so you must choose the one that matches your profile. ITR 5, ITR 6 and ITR 7 are for different types of companies.
3 – Not Reporting Exempt Incomes
Since no tax is levied on exempt incomes, most of the assessees prefer not reporting them at all. However, it is advised to disclose all your exempt incomes when filing Income tax return (ITR). Dividends received from shares of Indian companies and mutual funds, interest on PPF and EPF, and long term capital gains from sale of shares or mutual funds are among a few common earnings that fall under the exempt income category. If you do not disclose these incomes, the IT department will never get to know about the source of such incomes which may lead to suspicion and scrutiny. Hence, it completely makes sense to report these incomes and stay away from future hassles.
4 – Ignoring Disclosures
There are certain disclosure requirements in the ITR Form categorized in specific schedules which many of the assessees leave blank or just fill a rough estimate in the columns. This is typically a tax blunder. You should pay extra attention while disclosing assets owned by you in foreign countries. Any discrepancy may attract hefty penalties and also pose criminal charges with respect to holding black money.
5 – Incorrect Computation of Income from House Property
For a person owning multiple properties, computation of taxes might get a little confusing. Rules have been clearly specified by the IT department for such computation but people tend to make mistakes or skip the rules altogether. One common mistake they make is to calculate taxes only on the property that is actually let out and not on all vacant properties. For example, if you own a number of properties, only one out of these will be considered as self-occupied and the rest, whether lying vacant or used for residential purpose, will attract taxes as deemed let out properties. You should not skip these vacant properties while filing ITR as it may lead to negative consequences.
6 – Quoting Wrong Assessment Year
While filing your returns, you must make sure to fill the right assessment year. For example, when you are filing returns for taxes paid on income earned in FY 2016-17, you must write the assessment year as 2017-18. Mentioning wrong assessment year increases the chances of double taxation and attracts unnecessary penalties.
7 – Not setting-off Losses from Previous Year
While filing ITR for the current assessment year, you must look back at your ITR from the previous years. The IT department allows you to set-off losses from the previous assessment years against the current year gains. But remember that losses can be set-off only if that year’s ITR has been filed before the due date.
In addition to the above mistakes, you should also adhere to the ITR timelines in order to avoid interest under section 234A towards late filing. Carry forward of losses is also not allowed in case of delayed filing, except losses from house property. You should also be careful about the amounts and items you include under various heads in an ITR Form. Being extra vigilant will work in favour of you and save you from negative consequences in future.