Math mishaps: Don't end up paying more tax! Avoid these common ITR mistakes

Double-check your calculations! You might miss out on deductions you're entitled to or end up owing more tax than you need to.

Filing your income tax return (ITR) can feel like navigating a minefield. One wrong step, and you might end up with a notice from the tax department. Here are some common mistakes taxpayers make, explained with real-life examples, to help you avoid unwanted attention:

Choosing the Wrong ITR Form:

Imagine you're a salaried professional who also earns income from freelancing gigs. If you mistakenly use the ITR-1 form (meant for basic salary income) instead of ITR-3 (for income from various sources), the tax department might reject your return. They'll likely send you a notice asking you to file a corrected return using the appropriate form.

"There are different ITR forms for different types of taxpayers. Using the wrong form can lead to your return being rejected, and you may receive a notice to file a corrected return. For instance, if you're a salaried individual with income from investments, you might need to use ITR-2 instead of ITR-1, which is for basic salaried income," said Ritika Nayyar, Partner, Singhania & Co.

Nayyar lists down other instances too: 

Missing to report all sources of income: You need to report all your taxable income, including salary, interest income, capital gains, and rental income. Failing to report any income source can trigger a notice from the tax department.

Let's say you forget to mention the interest income you earned on your fixed deposit in your tax return. The tax department might identify this discrepancy and send you a notice for additional tax on that income.

Let's say you forgot to report the interest earned on your savings account too in your ITR. The tax department can easily identify this discrepancy through banks. You might then receive a notice for additional tax on that unreported income, along with potential penalties.

Mathematical errors in calculations: Simple errors in calculating your income, deductions, or tax can raise red flags. You might miscalculate how much tax you owe or forget about deductions you're eligible for. This can lead to the tax department asking you to explain the difference.

For example, you might incorrectly calculate the amount of medical expense deduction you're eligible for. This could result in the tax department questioning the deduction and potentially issuing a notice.

"Errors in income calculation, deductions, or exemptions are common pitfalls. Taxpayers may miscalculate taxable income, overlook eligible deductions, or provide inconsistent information across documents. Such discrepancies can raise red flags during tax assessments and prompt inquiries or notices for clarification," said Amay Jain, Senior Associate, Victoriam Legalis - Advocates & Solicitors.

Not filing ITR on time: There's a deadline for filing income tax returns every year. Missing the deadline can attract penalties and a notice from the tax department.

" Many taxpayers underestimate the importance of timely filing, leading to unnecessary financial burdens. For instance, submitting returns after the due date, as discussed in the verification process, may result in late-filing fees and additional scrutiny from tax authorities," said Jain.

Inconsistent or mismatched information: Make sure the information you provide in your tax return matches the information the tax department has on record, such as Form 16 (provided by your employer) and Form 26AS (a statement of your tax deducted at source). Recently the Annual Information Statement (AIS) also helps the taxpayers get a comprehensive view of the information displayed in Form 26AS. It can help verify that the taxpayer has disclosed all information / sources of income in the ITR. If there is a mismatch, it could be picked up and notice can be issued to verify the same.

There could be a mismatch between the interest income you report and the interest income reflected in Form 26AS. This inconsistency could lead to the tax department issuing a notice to clarify the difference.

A specific instance of quoting wrong PAN of your landlord while claiming HRA: Be extra careful when claiming House Rent Allowance (HRA) exemption.  Quoting the wrong PAN of your landlord can lead to trouble for both you and the landlord. You might get a notice questioning the HRA claim, while the landlord might receive a notice for not reporting the rental income (based on the PAN you provided). Double-check all details before filing your return!

Misclassification of Income Sources: Imagine you sold some stocks for a quick profit (short-term capital gain) but mistakenly report it as income from your business. This mix-up can lead to the wrong tax calculation and might trigger a notice from the tax department asking for clarification.

"One of the most common errors is misclassifying income sources. For instance, treating short-term capital gains from stock trading as business income. Such misclassifications can lead to incorrect tax calculations and trigger audits or notices from the tax authorities," said Jain.