ITR filing: Last minute mistakes to avoid when filing your income tax returns

Filing your taxes at the last-minute could lead you to miss out on disclosing some transactions or failing to gather all the required documents on time. For instance, if you invest in cryptocurrency, you have to disclose those transactions scrip-wise. 

Karan Batra, founder of Charteredclub.com, said crypto exchanges don’t have a standard format for statements, which means each transaction has to be entered manually. “P&Ls (profit and loss) of crypto transactions are not refined, unlike stocks. Declaring these needs extra caution."

Second, there are some mandatory disclosures that need exhaustive information. Schedule FA (foreign assets) and AL (assets and liabilities) are two such requirements. Schedule FA asks for the asset’s acquisition cost, present value, peak value in the year, address and corresponding income, if any.

Similarly, Schedule AL asks for the cost of all assets and outstanding loans used to acquire those assets, from taxpayers with incomes above ₹50 lakh. Gathering all such information on different assets to declare it correctly can be time consuming.

Also read: Understanding Schedule AL: Declaring assets for income above ₹50 lakh

By filing your tax returns at the last minute, you also run the risk of missing the deadline if Form 26AS or Form 16 are erroneous, and you can’t get the incorrect information rectified in time.

Solid advice

In any case, tax experts advise against missing the due date, not only because it attracts a penalty, but also because it has far reaching consequences for taxpayers who have opted for the old tax regime at the beginning of the financial year.

Taxpayers get time till 31 December to file a belated ITR, but with a penalty of ₹1,000 for incomes up to ₹5 lakh and ₹5,000 for the rest. Further, belated tax returns are by default filed under the new tax regime, which means you will have to forgo any deductions and exemptions you intended to claim. 

This can notably impact the tax outgo of taxpayers who planned their taxes under the old regime. 

For instance, the tax liability of a taxpayer with an annual income of ₹10 lakh—who can claim a deduction of ₹1.5 lakh under 80C and another deduction of ₹2 lakh on a home loan in the old regime—will be ₹42,500. 

However, the same taxpayer filing a belated tax return cannot claim these deductions and needs to pay a higher tax of ₹60,000.

To take the stress out of last-minute tax filing, Mint gives you a handy guide of all the changes introduced in the current year’s ITR utilities and mistakes to avoid.

Deduction disclosures

This year, ITR utilities are seeking more disclosures with respect to taxpayers with any disability or dependents who are disabled, donations, capital gains account scheme (CGAS), online gaming, and old bank accounts. 

Take note that there has been no change in taxation under any of these heads. Instead, taxpayers have to give additional details to get deductions, wherever applicable, and report incomes from these sources in the prescribed format.

For example, income from online gaming should be declared scrip-wise in the “Income from other sources" head. Also, not only those winning amounts that have been credited in the bank account is required to be declared, but also the accrued winnings in the gaming platform’s wallet are to be reported.

For taxpayers with disability or dependents with disabilities, two new schedules–80DD and 80U–have been added that need to be filled to get eligible deductions. 

Schedule 80DD, which allows for deductions on medical expenses or insurance premiums paid for a disabled dependent, requires the PAN and Aadhaar cards of the dependent for whom the deduction is being claimed. Details of their disability, their relationship with the assessee and filing date and acknowledgment number of Form 10-IA also need to be filed.

Meanwhile, Schedule 80U, which lets an assessee with a disability claim a deduction of ₹75,000 or ₹1.25 lakh depending on the degree of the disability, also seeks details similar to those required to claim deductions under Schedule 80DD.

Another important deduction that needs added disclosures this year are charitable donations eligible under section 80G. This year onwards, taxpayers have to get a 10BE certificate from the institute they donated to. 

Take note that not all donee institutes are giving this by default. So, the donor taxpayer must get it before the due date as they need to declare the ARN number mentioned in 10BE to get the eligible deductions on donations made by them.

Taxpayers must collect all these relevant documents to be able to claim the deductions.

Reconcile your AIS

From the past two years, most entries in the ITR utility are pre-filled basis information provided in the Annual Information Statement (AIS). 

But this year, the AIS is full of errors, especially for equity transactions. So, as a first step, you must cross reference Form 26AS, Form 16 (both A and B, if salaried), TDS and interest certificates and capital gains statements, with the AIS.

The most common errors to look out for are incorrect date of purchase and cost of sale of stocks and equity mutual funds. Taxpayers with share buybacks will see mismatches in the value of entries by a huge margin, pointed out Charteredclub's Batra.

“When the taxpayers tendered their shares for buyback, all of these were debited from their CDSL (Central Depository Services Ltd) account. However, not all shares were accepted and the remaining were returned to the taxpayers. So, while the broker’s statement is showing the value of the actual shares sold, the CDSL statement is showing the value of all the shares that were tendered, which is leading to the mismatch," Batra explained.

Also read: Why you shouldn't rely on AIS for reporting stocks, MFs, derivatives in your ITR

“In a client’s case, shares worth ₹8 lakh were sold in buyback, whereas AIS is showing the value as ₹1 crore, which is the value of shares he tendered for buyback," Batra said.

Taxpayers must also report all the equity transactions and capital gains as per the statements given by the brokers and not the AIS. Even for interest income, it is advised to refer to the Interest Certificate given by the bank. These can be downloaded from the internet banking platforms of the banks.

Verifying these figures with the various statements and forms will ensure that you don’t file erroneous ITR by relying on the pre-filled information.

It is imperative that taxpayers give feedback on errors in AIS at the time of filing the ITR. “Taxpayers can give feedback and go ahead with filing the ITR without waiting for a resolution. In most cases, the AIS is updated within a few minutes based on the feedback as the IT department is aware that it is laden with errors," Batra noted.

Even if you don’t get a resolution quickly, file the ITR before the due date as that gives you the option to file a revised return later if the resolution asks for it.

Forms to fill

ITR is filed under the new regime by default. Taxpayers who wish to opt for the old regime have to submit form 10 IEA before filing the ITR. Take note that this form is to be filled by taxpayers filing tax returns in Form 3 or 4. 

In ITR 1 and ITR 2, taxpayers are given the option to opt out of the new regime by simply selecting the old regime at the outset.

Also read: Income tax deadline looms: Know your ITR forms to avoid penalties

Gautam Nayak, partner at CNK & Associates LLP, said another important form to be filed along with ITR is Form 67, to avail the benefits available under Double Taxation Avoidance Agreements (DTAA). 

Form 67 is used to claim foreign tax credit, he explained.