Filing your Income Tax Return (ITR) is an annual ritual that demands precision, patience, and attention to detail. Yet, every year, thousands of taxpayers receive defective return notices or face delays in refunds simply because of avoidable errors. Whether you are a salaried employee, a freelancer, or a business owner, understanding the most common income tax filing mistakes is the first step toward a stress-free financial year.
Many taxpayers rush through the process as the July 31st deadline approaches, leading to discrepancies that the Central Processing Centre (CPC) rarely overlooks. These errors can range from selecting the incorrect assessment year to omitting interest income. In this comprehensive guide, we will dissect these pitfalls and provide you with actionable strategies to ensure your return is flawless. By avoiding these income tax filing mistakes, you safeguard your financial peace of mind and ensure compliance with the Income Tax Department.
Why Avoiding Income Tax Filing Mistakes Is Crucial
The Income Tax Department has significantly upgraded its technology. With the integration of the Annual Information Statement (AIS) and TIS (Taxpayer Information Summary), the government has a 360-degree view of your financial transactions. Consequently, the margin for error has shrunk. Making income tax filing mistakes is no longer just a minor inconvenience; it can lead to scrutiny, penalties under Section 270A for under-reporting income, or interest levies under Section 234A, B, and C.
Accuracy is not just about avoiding punishment; it is also about efficiency. A clean return is processed faster, meaning your refund hits your bank account sooner. If you are unsure about the status of your previous returns, it is wise to learn how to check income tax refund status and resolve delays before filing the new one.
Penalty Risks
incorrect filing can attract penalties ranging from 50% to 200% of the tax payable on under-reported income.
Refund Delays
Simple mismatches in bank details or pre-validation failures can stall your refund for months.
Defective Returns
Using the wrong ITR form renders your return ‘defective,’ requiring you to file a revised return within 15 days.
Critical Income Tax Filing Mistakes Related to Personal Details
It sounds surprisingly simple, but a vast number of returns are rejected due to basic data entry errors. Your personal information forms the foundation of your ITR.
Confusing Financial Year (FY) with Assessment Year (AY)
This is perhaps the most frequent income tax filing mistake made by first-time filers. The Financial Year (FY) is the year in which you earned the income (e.g., April 1, 2023, to March 31, 2024). The Assessment Year (AY) is the year following the FY in which you file your return (e.g., 2024-25). Selecting the wrong AY on the portal can render your filing invalid.
Incorrect Bank Details
The department no longer issues cheque refunds; everything is handled via the Electronic Clearing Service (ECS). If you provide an incorrect account number or IFSC code, or if your PAN is not linked to your bank account, your refund will fail. Ensure your bank account is “Pre-Validated” on the e-filing portal.
Income Tax Filing Mistakes When Choosing Tax Forms
One size does not fit all when it comes to ITR forms. The department has notified different forms for different categories of taxpayers. Choosing the wrong form is a substantive error that will almost certainly result in a notice.
For example, a salaried individual with capital gains cannot use ITR-1 (Sahaj). Similarly, if you are a partner in a firm, your requirements differ. You might want to understand more about business structures, such as partnership firm registration in India, to know which category you fall under.
ITR-1 (Sahaj)
For: Residents with income up to ₹50 Lakh, salary, one house property, and other sources (interest).
ITR-2
For: Individuals/HUFs not having business income but having Capital Gains or more than one house property.
ITR-3
For: Individuals/HUFs having income from a proprietary business or profession.
ITR-4 (Sugam)
For: Presumptive taxation scheme (Section 44AD, 44ADA) for business/profession up to ₹50 Lakh/₹2 Cr.
Selecting ITR-1 when you have capital gains from mutual funds is one of the classic income tax filing mistakes that triggers an immediate defect notice.
Major Income Tax Filing Mistakes in Reporting Income
Many taxpayers believe that only the income shown in Form 16 (for salaried employees) needs to be reported. This is a dangerous misconception.
Failure to Report Interest Income
Interest earned from Savings Bank Accounts, Fixed Deposits (FDs), and Recurring Deposits (RDs) is fully taxable. While Section 80TTA provides a deduction of up to ₹10,000 for savings interest (₹50,000 for senior citizens under 80TTB), the income must first be added to “Income from Other Sources.” Ignoring this is a primary income tax filing mistake because banks report this interest directly to the tax department via TDS returns and the SFT (Statement of Financial Transactions).
Ignoring Exempt Income
Even if certain income is tax-free (like PPF interest or agricultural income), it must be reported in the ‘Exempt Income’ schedule of the ITR. High-value transactions that do not match your reported income profile can trigger scrutiny.
Income Tax Filing Mistakes in Claiming Deductions
Deductions are designed to lower your tax liability, but claiming them incorrectly can backfire. A common scenario involves double-claiming or claiming without evidence.
Many taxpayers hurriedly try to maximize their Section 80C limit at the last minute. For a detailed breakdown of what is available, refer to the list of income tax deductions from Section 80C to 80U.
Ignoring Form 26AS: A Frequent Income Tax Filing Mistake
Form 26AS is your tax passbook. It contains details of tax deducted at source (TDS) by your employer, banks, or tenants. If you file your return without reconciling it with Form 26AS and the new AIS (Annual Information Statement), you are inviting a tax demand notice. If the TDS claimed in your ITR is higher than what is reflected in Form 26AS, the system will not process the refund for the excess amount.
Failing to Verify the ITR
The filing process does not end when you hit the “Submit” button. This is one of the most heartbreaking income tax filing mistakes. After uploading the data, you must verify the return within 30 days (reduced from the earlier 120-day limit).
You can verify your return via:
- Aadhaar OTP (Most popular and fastest).
- Net Banking.
- Bank Account EVC.
- Sending a signed physical copy of ITR-V to the CPC in Bengaluru.
If you fail to verify, your return is treated as invalid, meaning legally, you never filed taxes for that year.
Clubbing of Income Errors
If you have invested in the name of your spouse or minor child, the income generated from that investment is often clubbed with your income. For instance, if you gift money to your non-working spouse to invest in FDs, the interest earned is taxable in your hands, not theirs. Overlooking the “Clubbing of Income” provisions is a sophisticated but common income tax filing mistake.
Not Reporting Assets for High Earners
If your total income exceeds ₹50 Lakhs, you are mandatorily required to disclose your assets and liabilities in Schedule AL. This includes land, buildings, cash in hand, jewelry, vehicles, and other assets. Hiding these assets or failing to declare them constitutes a serious violation.
Conclusion
Filing your income tax return is a responsibility that reflects your financial integrity. While the process has become more streamlined, the automated checks have made it harder to get away with errors. By being vigilant and avoiding these common income tax filing mistakes—such as choosing the wrong form, ignoring interest income, or failing to verify the return—you ensure a smooth assessment year.
Always cross-check your data with the AIS and Form 26AS. If the process feels overwhelming, consult a Chartered Accountant. Remember, it is better to file correctly a few days late than to file incorrectly on time and face years of litigation. For more detailed guides on finance and compliance, explore our business and finance insights.
Frequently Asked Questions
If you discover an error after filing, you can file a “Revised Return” under Section 139(5) before the end of the Assessment Year or before the assessment is completed, whichever is earlier. However, frequent revisions may attract the attention of the tax officer.
Yes, you must report the interest income under “Income from Other Sources.” You can then claim a deduction under Section 80TTA (or 80TTB for seniors) to make it tax-free up to the limit. Not reporting it is a discrepancy.
Salaried individuals can switch between the Old and New Tax Regimes every year at the time of filing. However, those with business income can only switch once in their lifetime. Ensure you submit Form 10-IE if required for the switch.
Form 26AS primarily shows TDS and TCS details. The Annual Information Statement (AIS) is more comprehensive, including details of savings interest, mutual fund transactions, securities, foreign remittances, and more. Always prioritize AIS data.
If you do not verify your ITR within 30 days of filing, the return is considered invalid. You may have to file a fresh return as a “Belated Return,” which attracts a late filing fee of up to ₹5,000.
