Essential Tips for First-Time Income Tax Return Filers
Filing Your Income Tax Return
Income Tax Return Filing: Individuals filing their income tax returns for the first time often make mistakes that can lead to complications later. Common errors include selecting the wrong ITR form, providing incorrect information in the Annual Information Statement (AIS), failing to report all income and losses, or not disclosing details of all bank accounts. Such oversights can result in delays or unnecessary scrutiny of returns. Therefore, first-time filers should pay attention to these critical points.
Choose the Correct Form
There are seven types of ITR forms: ITR-1, ITR-2, ITR-3, ITR-4, ITR-5, ITR-6, and ITR-7. Different income groups must fill out different forms. The table below outlines which form to use based on your income situation.
Check Your Annual Information Statement and Form 26AS
First-time filers often rely solely on Form 16 issued by their employer and overlook the details available in the AIS/TIS and Form 26AS. These documents reflect income reported by employers, banks, mutual funds, and others, along with TCS/TDS deductions. Therefore, it is crucial not to ignore the details in Form 26AS.
Report All Income and Losses
Taxpayers sometimes only report taxable income when filing their ITR, which is a mistake. It is essential to disclose exempt income, such as PPF interest, and capital losses. If you opt for the Old Tax Regime and fail to report such income or losses, it could lead to financial disadvantages.
Keep Necessary Documents Organized
Many individuals claim deductions while filing taxes but do not retain the associated documents or evidence. This is a significant error, as proof of these deductions is necessary if the income tax department conducts an audit later. Therefore, it is vital to keep all receipts, investment certificates, medical bills, and insurance premium documents organized. This not only simplifies tax filing but also helps avoid future complications.
Select the Correct Income Category
Misclassifying income is a common yet serious mistake. For instance, reporting freelance income as salary or short-term capital gains as long-term can lead to incorrect tax calculations. Understanding and accurately classifying income is essential for filing the correct tax return.
Declare Foreign Shares as Foreign Assets
Indian employees working in MNCs often receive foreign shares. It is necessary to report dividend income and capital gains from selling these shares. Foreign shares must also be declared as foreign assets. If tax has been deducted, relief may be available under the Double Taxation Avoidance Agreement (DTAA). Concealing this information can result in penalties.
Disclose All Bank Account Information
First-time tax return filers often only provide details of their salary account and neglect to include savings and NRO accounts. It is essential to report all bank accounts.
Complete E-verification
E-verification must be completed within 30 days of filing the return. Ignoring this step can render the return invalid. E-verification can be done using Aadhaar, OTP, or net banking.