Filing your income-tax returns? Avoid these five mistakes

Asia's Tech News Daily

#Income Tax, #ITR, #Tax, Filing income tax returns , filing your income-tax returns, residency status , ESOPs, savings bank, fixed deposits, dividend income

Filing income tax returns can be challenging, even if you are not new to the process. As if the cumbersome paperwork is not enough to test your patience, a smooth completion is often thwarted by the glitches on the income tax return-filing portal at the last minute. Add to these, the many changes in tax rules every year, and the task sounds a lot more complicated. Mistakes are bound to happen when filing your income-tax returns.

For instance, choosing the wrong assessment year, not pre-validating your bank account, entering the wrong bank account details for receiving refund, not e-verifying your return within 120 days of having filed it and so on. Then, there are errors that could be major enough to invite a notice from the income tax department.

From the tax department’s perspective, the complex nature of the exercise is not a sound defense. You will have to face the consequences of errors – major or minor – in your income tax returns forms. Here’s a guide to avoiding some common mistakes.

Declaring the wrong residential status

The number of days you stayed in India in the previous financial year primarily determines your residency status and, ultimately, the tax liability as per income tax rules. For instance, if an Indian citizen or person of Indian origin has spent 182 days or more during the previous financial year in India, she would fall in the ‘resident’ category. However, there are several other conditions that come into play while determining whether she is resident and ordinarily resident or resident but not ordinarily resident.

Also Read: Clarity emerges on income tax rules for NRIs stranded in India due to Covid-19

“Many times we observe that taxpayers makes mistakes in reporting their residential status. When they actually qualify as resident they report it as Non-resident or Not Ordinarily Resident, or vice-versa. This can lead to serious tax and reporting default,” says Chetan Chandak, Founder, Now, resident taxpayers are required to pay tax on income earned in other countries too, besides having to report all their foreign assets and accounts in Form ITR-2.

Also read: Money matters that NRIs must fix before returning to India for good

“If a Resident taxpayer fails to do so, he may be severely penalised for non-payment of due taxes on their foreign income and also for non-reporting of foreign assets and accounts. This is more crucial considering the fact that now India has signed IGA with many countries and has set-up the mechanism for automatic exchange of information with other tax authorities,” he explains.

Concealing information on unlisted shares

If you own shares of any unlisted, private limited company, you have to provide details of all such stocks, sale and purchase transactions during the year, along with the cost of acquisition. “This helps tax authorities determine your tax liability on such transactions. If you fail to disclose these details, it may amount to filing a wrong return and consequential penalties will apply,” explains Chandak.

Employees working with start-ups or other private limited companies need to be especially wary of this rule. “That is, if such employees have received ESOPs as part of their salary structure. Do note, however, that shares of foreign companies that are listed anywhere in a foreign country may not necessarily be considered as unlisted companies for the purpose of this clause. But those shares may be required to be reported under Foreign Asset Category in Form ITR depending on your residential status,” he explains.

Not declaring savings account interest

Many of us park substantial amounts in our savings banks to take care of emergency needs or due to sheer lethargy that prevents its deployment in better-yielding avenues. Now, the bank pays your interest every quarter on this balance. But this amount is not reflected in your form-16 issued by your employer. If you fail to browse through your bank statements for the financial year to look for savings account interest earned and declare it in your I-T returns, you could end up with a notice from the income tax department. This is also applicable to interest earned on fixed deposits – it has to be declared under ‘Income from other sources’. “Claiming HRA exemption and 80GG deduction on rent payment simultaneously can also lead to a notice,” says Abhishek Soni, Co-founder and CEO,

Switched jobs? Don’t forget to report salary for full year

In case you switched jobs during financial year 2020-21, do not forget to obtain form-16 issued by the previous employer. “Income from both the employers needs to be considered in the ITR. If it is not disclosed, you may receive a notice from the Income-tax department,” says Soni.

Not disclosing dividend income

Applicable from this assessment year in particular, it is likely that some individual investors could completely miss declaring dividend income earned on mutual funds and stocks. Even if they do, some might make errors while calculating this income this year. This is because such dividend became taxable in the hands of individual investors only from financial year 2020-21 and, hence, is a new development this assessment year.

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