Key ITR Filing Mistakes Salaried Employees Must Avoid
Filing an Income Tax Return (ITR) has become more complex than simply copying details from Form 16. With tax authorities now leveraging comprehensive financial data from Form 26AS, the Annual Information Statement (AIS), and the Taxpayer Information Summary (TIS), even minor oversights can lead to unwanted tax notices, additional liabilities, penalties, or significant delays in refunds. CA Suresh Surana advises salaried taxpayers to meticulously reconcile all income, deductions, and disclosures before submission.
Here are eight common and costly mistakes salaried employees should be vigilant about:
1. Over-reliance on Form 16
While Form 16 provides salary income and Tax Deducted at Source (TDS) reported by your employer, it often doesn't include other income sources. These can range from interest on fixed deposits or savings accounts, dividends, capital gains, rental income, or freelance earnings. It's crucial to cross-verify Form 16 with Form 26AS, AIS, TIS, bank statements, and personal investment records to ensure all income is accurately declared.
2. Incorrect Tax Regime Selection
Many taxpayers choose between the old and new tax regimes without thoroughly comparing their potential tax liabilities under each. The new tax regime offers lower slab rates but restricts numerous exemptions and deductions available under the old regime, such as House Rent Allowance (HRA), Leave Travel Allowance (LTA), home loan interest for self-occupied property, and deductions under Sections 80C, 80D, and 80CCD(1B) (with specific exceptions). Always calculate your tax under both regimes to make an informed decision.
3. Claiming Deductions Without Valid Proof
Employees sometimes declare investments to their employer to reduce TDS but fail to make these investments before the financial year concludes. Always retain valid receipts for all claimed deductions, including insurance premiums, ELSS investments, provident fund contributions, home loan repayments, and eligible donations. These proofs are essential for deductions under Sections 80C, 80D, 80CCD, 80G, and other relevant provisions.
4. Misreporting Capital Gains
Investing in shares, mutual funds, Employee Stock Option Plans (ESOPs), or property can lead to capital gains, which are frequently misreported. It's vital to correctly classify gains as short-term or long-term, considering the holding period, cost of acquisition, sale value, indexation benefits, and any available exemptions. Incorrect reporting can result in substantial tax demands.
5. Errors in Reporting Special Income (Bonus, Arrears, Severance Pay)
Income components like joining bonuses, retention bonuses, salary arrears, advance salary, severance pay, and retirement benefits can have varying tax treatments. Some payments may qualify for relief under Section 89, while others might be partially exempt or fully taxable. Always verify your salary slips, employer communications, and Form 16 to accurately report such income.
6. Non-disclosure of Foreign Assets
Indian residents and ordinarily resident taxpayers are legally required to disclose all foreign assets and income. This includes overseas bank accounts, foreign shares, ESOPs, and any financial interests in foreign entities. Non-disclosure can attract severe penalties, potentially up to ₹10 lakh, under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, subject to specific exceptions.
7. Bank Account Errors Leading to Refund Delays
Refunds can be significantly delayed or even rejected due to incorrect bank account details, failure to pre-validate the bank account, or mismatches between your PAN and bank records. Ensure your refund account is active, pre-validated with the Income Tax Department, and correctly linked with your PAN before filing your return.
8. Forgetting to Verify the ITR
Submitting your ITR is not the final step. It is mandatory to e-verify your return within the prescribed timeline using methods like Aadhaar OTP, net banking, or other approved options. An unverified ITR is considered invalid, which can delay refunds and halt the entire processing of your return.
With tax authorities having greater access to financial information, a well-documented and accurate ITR is essential. It helps in avoiding notices, unnecessary tax demands, penalties, and refund delays, while also ensuring all eligible tax benefits are correctly claimed.