This month is crucial for everyone, especially those earning an income and under the watchful eyes of the tax authorities. It’s the time when taxpayers must declare their income and pay taxes to the government – a process we call filing an income tax return or ITR. However, the process can be confusing due to multiple ITR forms, income sources, and common filing errors.
Let’s break down the complexities of ITR filing.
Understanding the Basics: Types of Income and Their Corresponding Forms
There are five main sources of income:
- Salary
- Business Income
- Capital Gains (from sale of property, shares, etc.)
- Income from House Property
- Other Sources (interest, lottery winnings, etc.)
The type of income you earn determines which ITR form you should use. Here’s a simplified breakdown:
ITR-1 (Sahaj): If your income is solely from salary and it’s under ₹50 lakh (or ₹1 crore in certain cases), this is your form.
ITR-2: Applicable if you have capital gains (e.g., selling property or shares) and your gains exceed the exemption limit under section 112A.
ITR-3: Required for those with business income – for example, consultants, traders, or freelancers.
ITR-4 (Sugam): Designed for small businesses or professionals (consultants, doctors, advocates) who opt for presumptive taxation, where turnover is within the ₹2 crore or ₹10 crore limit (or ₹75 lakh for professionals).
Important Note: Filing the wrong form (for instance, ITR-1 instead of ITR-2) can result in a defective return notice from the tax department, prompting you to correct and refile.
Forms beyond ITR-4 (ITR-5, 6, 7) cater to companies, firms, and societies, which usually have dedicated tax professionals.
Choosing Between Old and New Tax Regimes
When filing, many taxpayers are unsure whether to opt for the old regime (with deductions) or the new regime (lower rates, fewer deductions). The choice depends on your specific financial situation, so it’s best to evaluate your options before submitting your return.
Top 5 Common Mistakes to Avoid When Filing ITR
Following are the most frequent errors taxpayers make – and how to avoid them:
Not Reconciling Form 26AS: Your Form 26AS summarizes TDS (tax deducted at source) and tax payments. Failing to reconcile it with your reported income can result in mismatch notices.
Not Reporting High-Value Transactions: If you’ve made large purchases (like expensive jewelry) not supported by your declared income, the tax department might flag this as suspicious.
Providing Incorrect or Incomplete Information: Errors or omissions can lead to notices or rejections.
Claiming Unsupported Deductions: Common issues include claiming rent deductions without proof or other ineligible deductions.
Failing to Report Foreign Assets: Even middle-income taxpayers increasingly invest abroad (e.g., shares, property in Dubai). Failing to declare these can result in notices.
Final Words of Advice
The ITR filing deadline is July 31, unless extended by the government. Don’t wait until the last minute – the portal might get congested, or you might face issues like power outages or system glitches.
Start early, reconcile your records, choose the right form and regime, and file accurately.
Remember, the return you’re filing this year pertains to income earned during the last financial year (ending March 31). Only income up to this date counts for deductions and claims.
