7 key tips to unlocking benefits of filing early tax returns

No longer a 20-minute exercise, file ITR by December while you still have time on your hands

The Central Board of Direct Taxes has decided to further extend the due date for filing income-tax returns (ITR) for Assessment Year (AY) 2021-22 to December 31 from September 30.

Filing ITR is no longer a 20-minute exercise, even if done online.

Here’s a checklist by tax experts on the mistakes to avoid while filing ITR.

New or old tax regime

This year there is the option of filing ITR under the new or old tax regimes. Under the old regime, the taxpayer will get deductions and exemptions. Under the new, the tax rate is lower, but without all deductions and exemptions.

Suvigya Awasthy, associate partner, PSL Advocates & Solicitors, says, “It is recommended to select the better of the two to optimise your tax saving. The idea is to make the compliance process less tedious through removal of tax deductions and exemptions. The new Budget tries to curtail the option to save and puts more money in the hands of taxpayers.”

However, individuals and Hindu Undivided Families are given the option to choose between the old and new tax regime.

Vivek Jalan of Tax Connect Advisory Services, says, “Employees with investments in tax-saving schemes should opt for the old scheme; others should go for the new one.”

Tax under the new regime is payable at lower slab rates, compared to the old regime, on an income of up to ~15 lakh. Under the new regime, tax slabs of 5 per cent, 10 per cent, 15 per cent, 20 per cent, and 25 per cent are applicable on each successive increase of ~2.5 lakh, starting from the basic exemption of ~2.5 lakh till ~15 lakh of total income.

Choose the right ITR form

There are separate ITR forms for different sources of income.

Moiz K Rafique, managing partner, Privy Legal Service, says, “Any mistake committed while undertaking the filing of ITR can be corrected by revision, if such a filing is made before the deadline. Such revisions can be made under Section 139(5) of the I-T Act for discoveries like omission or wrong statement, keeping in mind such revisions are also carried out before the end of the relevant AY or before completion of the assessment, whichever is earlier.” It is, however, possible that in a few cases, the return filed in the wrong form would be treated as valid as the return may be structurally fine. In all other cases, the filing will attract penalties.

Skipping savings a/c interest

Interest income from savings bank account must be reported under the income head from other sources while filing ITR.

Kapil Rana, founder and chairman, Hostbooks, says, “However, a resident individual aged under 60 years can claim deduction of up to ~10,000 under Section 80TTA.”

But a resident individual aged 60 years or above can claim deduction of up to ~50,000 under Section 80TTB.”

Rana adds, “Non-reporting of interest income will be considered misreporting, and the assessee may receive notice from the I-T department.”

Not matching income and TDS with details in Form 26AS

Ensure you check Form 26AS before filing ITR. Form 26AS includes all the income details, tax deducted at source (TDS), advance tax paid, self-assessment tax, inter alia. Therefore, details provided in the ITR should match the income details in Form 26AS.

Manish P Hingar, founder, Fintoo, an investment and tax advisory firm, says, “You are sure to receive a notice from the I-T department if the income you declare does not match the amount in Form 26AS. If the amount shown declared is less, it will be regarded as an attempt to understate original income.”

Not reporting dividend income

While filing tax return for AY 2021-22, the dividend income has to be shown as taxable.

Naveen Wadhwa, deputy general manager, Taxmann, says, “Earlier the dividend was exempt in the hands of shareholders. Now it has become taxable and is required to be disclosed as ‘income from other sources’.”

The quarterly break-up of dividend income is to be reported in the ITR form i.e., dividend earned up to June 15, 2020, from June 16-September 15, 2020, from September 16-December 15, 2020, from December 16, 2020March 15, 2021, and from March 16-March 31, 2021.

Wadhwa says, “Dividend received in excess of ~5,000 is also subject to 10 per cent TDS, so the non-reporting of such income may invite a notice from the tax department.”

Reporting exempt income

Certain types of income are exempt from tax, as provided under Section 10 of the I-T Act. It is, however, important for the taxpayer to disclose details of such income in his ITR.

Nikhil Varma, managing partner, Miglani, Varma & Co. (Advocates, Solicitors, and Consultants), says, “Not disclosing exempt income in the ITR could make it difficult for a taxpayer to explain the source of a particular income in future.”

Forgetting e-verification

The ITR is deemed to be filed only if the taxpayer, after filing return, verifies it.

Verification of return is mandatory to get it accepted and processed by the Centralised Processing Centre (CPC).

The process of verification has to be completed within 120 days of ITR filing.

Wadhwa says, “An ITR can be verified with a digital signature, an e-verification code, an Aadhaar-based one-time password or submission of acknowledgement to CPC, Bengaluru. If you fail to either e-verify it or post it, the return will be treated invalid.”

Varma says, “Taxpayers must be very cautious while furnishing details of capital gains, probably the most complex part of the entire form. The tiniest error in this section could cost the taxpayer a higher interest.”

Ensure you file your returns while you have time on your hands. There is no limit to the number of times you can file revised returns. But once scrutiny of assessment is completed under Section 143(3), returns cannot be revised. Hence, don’t wait till the December 31 deadline.