Tax is an ever-occurring phenomenon. We face it every year and yet we are never quite ready for it. There’s always a chance of something going awry or a last-minute stress over some details. There are some common pain points people faced in this year’s tax filing. We have compiled a few to-dos which will ease out the pain which can be borne in mind while filing taxes next time.
Incorrect ITR Form
This is one of the most commonly made mistake by taxpayers. Even a timely filed tax return will be deemed as invalid and defective, if the individual has not selected the correct ITR Form. Before starting off the process of filing returns, one must check all the income sources throughout the year. The choice of ITR Form is based on the source from which the taxpayer has earned income in the concerned financial year. For instance, a salaried individual who has earned interest income in the year should use ITR-1. On the other hand, someone who has earned LTCG (Long-term capital gains) on a sale transaction should go with ITR-2.
A small leak can sink the biggest of ships. Similarly, in tax computation we often err with the most basic details such as date of birth, postal address, city of residence (metro or non-metro), bank account numbers, etc. For instance, while Bangalore is colloquially considered as a metro city, for income-tax purposes it is not. The correct city classification has an impact on the HRA (House Rent Allowance) exemption limit. Double check all the details that you enter in the ITR Forms.
Report all income sources
Many times, taxpayers forget to include all income sources while doing their tax computations. Even exempt income needs to be declared. For instance,
Income from investments such as Fixed Deposits or saving accounts, capital gains from sale of assets or mutual funds, etc.
Rental income from house properties
Winnings or windfall income
Income to be clubbed
In case of minor’s income, the same needs to be clubbed with the parent’s income (with the higher income) for tax purposes. This clause is also applicable for spouse’s income if he/she is receiving any remuneration from an entity in which the taxpayer holds substantial interest.
Change in employer
If you have changed employers during a financial year, do not forget to disclose the income from the previous organization as well. Otherwise, all the employers will consider the lower income tax slabs while doing the computation. However, at the time of filing your tax returns, there will be major discripencies with your Form 16 and you will be in for a nasty surprise in the form of penalties.
Include all investments
This is not really a mistake, but rather a matter of oversight. We all try to ensure that we have investments worth Rs 1.5 Lakhs to qualify for tax deductions as per Section 80C of IT Act, 1961. However, many salaried individuals forget to consider the PF deductions that are made from their monthly salary. As a result, they end up with investments more than the maximum deduction limit. Though more savings is not a bad deal, but the additional funds could have been invested in more appropriate options. Hence, always ensure that you consider all your eligible investments.
Also, ensure to make use of all other eligible deductions such as donations to charitable institutions, loan (education or home) repayment, health insurance premium for parents, etc.
Invest significant time and effort in your tax computations. If you do, then such nasty surprises will never end up shocking you. Also, do not wait till the last moment to file your returns.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.