Every assessee is vulnerable while filing his Income Tax Return or computing his tax liability either due to lack of knowledge or due to carelessness. These mistakes might seem to be too petty to worry about, but they can impose heavy penalties or punishments during the times of investigation and audit. Hence it becomes significant to file I.T returns precisely considering every minute detail that can affect the tax liability. Below mentioned are the points for starters which should be taken into mind while income tax returns filing.
Common Mistakes by taxpayers while calculating Income tax and Income tax filing:
1. Omission of Interest earned
It is the most common mistake done by every tax payer. Gross total income of tax payer includes interest received through saving account, fixed deposits, recurring deposits, post office savings etc. Irrespective of the interest amount earned, it should be included in total income. To avoid this mistake one should always reconcile the Bank Statement to calculate total interest earned.
2. Missing to report Details of exempt income
One must remember that dividend income from the Indian companies and long term capital gain on various securities are all exempted from income tax. There is a popular misconception that these incomes need not be disclosed in the returns.
However, the investment company or the brokerage house will always send these details to the IT department. So to avoid future complications, one must highlight these incomes at the time of e-filing.
Reporting the income of the minor
Many people make investment in their child’s name but fail to report it. The rule is to club the minor’s income with that of his parents (one who is enjoying the higher income) when e filing income tax returns.
So your total net income will be inclusive of that earned in your kid’s name. This works just like in PPF where the total highest exemption of Rs.1,50,000 is inclusive of your children’s limit.
3. Single Expenses claimed by two people
This scenario happens when both the husband and wife are working couples. On being asked by the payroll officer at the time of Income Tax filing, they individually furnish photocopies of their medical bills, house rent proof, insurance premium receipts, tuition and education fees etc. In such cases the company payroll officer takes these documents as true statement and calculates tax liability according to it. But in reality, same expense is claimed for tax rebates by two people. Hence, the couple should properly plan and segregate their share of bills or expenses.
No need to file tax return when tax is deducted
It is a common mistake when filing income tax. People assume they need not file tax returns when tax has already been deducted by employer or TDS is paid. They also think if net income after exemptions is less than Rs.2.5 lakh then no need to file returns. It is not so. Every individual must file his returns. Why?
Because the amount paid as advance tax or deducted as TDS will be held by Income tax department. The IT department will wait for you to complete self-assessment of your taxes. Only when you file your income tax return, the IT department will acknowledge it and release the amount from its books to the government.
The released amount will be considered as revenue by the Central Government for expenditure. So it is penal to delay your returns which attracts interest if not filed on time.
All individuals (not senior citizens) whose gross income is above the minimum limit (as declared from time to time) are compulsorily required to file tax returns.
4. Ignorance of Income from Other sources
Income from other source includes gifts, dividends and interest on securities, pensions and many more things. Gifts are exempt from tax when received by specified family members or on occasion of marriage, or by way of will or inheritance. For this make a list of gifts received from non-family members above Rs. 50,000/- in a financial year and check whether subject to gift tax or not.
5. Filing Income Tax returns as per latest tax provisions
Many assesses know about the basic tax rules, exemption limit and deductions but are unaware of the latest Income Tax notifications, amendments and circulars. Ignoring even a small change in rules of income tax e filling may lead to non-availment of benefits or even failure in return filing.
6. Selecting appropriate ITR form
Filing of correct ITR form is equally important as filing of Income Tax although there are no provisions for penalty but this may lead to rejection of return or filling of revised Return.
These small mistakes committed whether intentionally or accidentally may cause legal commotion to the assessee. But the good news is that, I.T.Returns can be filed online with advisory of Tax experts. For income tax return online filing and advisory services, please visit http://www.finmart.com/