Mistakes to be avoided while filing income-tax returns
Delaying filing returns till the last minute
Blind belief in pre-filled details, hiding Form 16 from previous employers, and failure to declare details of property transactions, even though there is nil tax, are some of the pitfalls to avoid while filing I-T returns
With hardly a fortnight to file the income-tax returns for assessment year 2022-23 (when income for the financial year 2021-2022 is accounted for) without penalty, it is high time one got the paperwork in order.
The erroneous filing of tax returns could delay the process. Also, a hurdle of revised returns could follow. Here are some errors that chartered accountants have noticed in the current return-filing season.
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| IMG Source: MoneyControl |
The rate of filing I-T returns has been low so far in July 2022. “The speed of filing has been lacklustre in the first week of July as hardly 69 lakh filings have been done in June and 7 crore are yet to be done. Taxpayers aren’t convinced about the deadline of July 31, 2022. In the past two years, the deadline has been extended multiple times due to COVID-19,” says Sujit Bangar, Founder of TaxBuddy.
If you are anticipating a further extension, you may be mistaken.
Further, there is a chance that the I-T department website could hang from the overload as the date nears. So it makes sense to file the returns before the deadline, if you don’t want to pay the penalty of Rs 1,000-5,000 for late filing.
Also, if there is any balance tax payable, remember the interest meter has started ticking since April 1, 2022, and the delay is causing you to face additional payment.
Careful with pre-filled details
For many low-income earners, pre-filled tax returns are available. Here, the information is filled in through the data collection done from various organisations, such as companies, for salaries and dividend tax deducted at source (TDS), from banks for fixed deposits and savings bank account interest, and from charitable organisations for donation details.
However, chartered accountants warn that one shouldn’t blindly approve the pre-filled details, but assess them before filing their returns. Often, joint account holders in banks and mutual funds find the information mentioned in both of their returns, when ideally it should be taxed only for one holder.
“Some details are missing from pre-filled returns, especially in the case of deduction to be claimed for senior citizens under Section 80 TTA. The pre-filled forms might offer a deduction of Rs 10,000, instead of Rs 50,000 applicable for senior citizens,” said Sudhir Kaushik, co-founder of TaxSpanner.com.
Not all savings interest is reflected
Many who ignore the cumbersome task of calculating savings bank account interest would be surprised if the chartered accountant question them. The Annual Information Statement (AIS) now mentions savings bank account details, too.
“The government has the data. Until now, minor interest income from savings bank accounts was neglected, even though interest from FD was reported in Form 26 AS. But AIS integration has reduced the non-reporting of savings bank interest,” says Bangar. However, often it has been noticed that failure to update the data by banks to the tax department, some details are missing.
“We have noticed that many banks haven’t yet uploaded the savings bank interest data. A couple of notices have been recently received, wherein details from some bank accounts were missing in the I-T return forms. So, one should check the AIS data to ascertain whether all the bank accounts have been notified,” suggests Mumbai-based chartered accountant P T Poladia.
Hiding income from previous employer
With high attrition rates during the year, chartered accountants say there are many individuals who have multiple Form 16s – a document handed over by the employer mentioning the income, tax deduction and tax-saving investment details – this year.
In any other year, hiding previous income from another employer would have been possible. But since the past year, AIS captures details from multiple Form 16s as well.
“Those who were just showing one Form 16 earlier to the chartered accountant and hiding the previous employer’s Form 16, now need to understand that AIS contains all details. In fact, they tend to gain by showing all the forms as the previous employer may not often collect the proof of investments during the latter part of the year and tends to deduct additional tax,” says Kaushik.
There are many who forget to claim HRA exemption, especially those who have worked with two employers, he says.
Property sale details necessary
Have you sold property and re-invested in another property to save taxes? Don’t forget about the transaction while filing returns. Even though the tax has been nullified, since the money was reinvested, you have to declare the details.
“After selling a property, you may have reinvested the money in another property and there may be no tax liable. But declaring details in the returns and the indexation (adjustment against inflation) used to derive the no-tax zone need to be mentioned in the returns as the government has been keeping a watch on property transactions,” says Poladia.
Processing of returns, too, can be delayed or prove to be difficult, if there is a mismatch between the data sourced through registrar offices and your tax return.
Crypto assets declaration
The Union Budget 2022 announced a steep 30 percent crypto taxation. But that would be applicable from the next assessment year (2023-24). But how should you declare past assets now that the law has been stated?
“Investors have a huge amount of confusion over crypto taxation. Should the assets created through crypto investments be included as foreign asset? Before the taxation was announced, they could have been declared under capital gain or business profit, or just like they would declare a sale from antique items or paintings,” says Bangar.
Now the whole categorisation has changed and a fresh confusion and apprehension has been created about crypto assets. “A better way to declare cryptocurrency as an asset this assessment year is to declare it in the assets and liabilities section under ITR 2,” Bangar adds.
Avoid adjusting losses from crypto
As per I-T Act, 1961, long-term capital loss, which cannot be adjusted during the same financial year due to lack of gains, can be carried forward for eight years.
While filing the taxation returns for the assessment year 2022-23 (financial year 2021-22) chartered accountants are facing a dilemma as to whether the carried forward losses incurred on virtual assets prior to April 1, 2022, can be set off against the other capital gain.
However, under cryptocurrency and digital assets law, the government has disallowed adjustment of losses against gains. These taxes on virtual assets would apply from the financial year 2022-23.
“We are awaiting clarification from CBDT regarding the issue of loss adjustment carried forward. If they are disallowed, that would negatively impact the taxpayers since these would be retrospective changes,” says Paras Savla, partner at KBP & Associates.
But until clarification is issued, chartered accountants are taking a safe foot forward.
“Earlier, the intent of the law was not clear. Now that we know the intent is to treat it like a lottery, the current law will be considered even though it is applicable from the next assessment year. In case a conflict arises, the adjustment of crypto loss will be rejected,” says Kaushik of TaxSpanner.com.
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