Common Tax Mistakes That Can Trigger an Income Tax Notice
In India, filing income tax returns (ITRs) requires careful attention to detail, as even minor mistakes can result in a notification from the income tax department. Failing to report all sources of income, selecting the incorrect ITR form, omitting TDS details, neglecting to record foreign assets or income, submitting false or inflated deduction claims, and failing to file an ITR when required, among other common errors, can lead to scrutiny or notices from the Department.
The following are specifics of some typical errors:
1. Not Declaring Foreign Income or Assets — Regardless of taxability, residents and ordinary residents (ROR) are required to report foreign income and assets (such as bank accounts, shares, and real estate) in Schedule FA of the ITR. Notices and penalties may result from non-disclosure.
2. Choosing the Wrong ITR Form — Under Section 139(9), choosing the wrong ITR form based on your taxpayer category or income sources may result in a faulty return notice. Be careful by choosing the correct form during income tax return filing.
3. Failing to Report All Income Sources — A common issue is not declaring all sources of income. Reporting is required even for tax-exempt income, such as long-term capital gains (LTCG) from mutual funds or equity shares up to Rs. 1.25 lakh. Any inconsistencies may result in notices from the Income Tax Department, which cross-verifies ITR data with Form 26AS and the Annual Information Statement (AIS).
4. Inflated or False Claims for Deductions — Deductions that are not admissible under Chapter VI-A or that are claimed without the required paperwork, such as phony rent receipts for House Rent Allowance (HRA), may be subject to investigation.
5. Mismatch in TDS Details — If there are differences between the Tax Deducted at Source (TDS) that you reported on your ITR and the information on Form 26AS or Form 16/16A, you may receive a notification.
High-value transaction non-filing — The Income Tax Department works with other government organisations to identify people who make large purchases but either underreport their income or neglect to file their ITR. Banks and other authorised organisations are required to declare high-value or SFT (Statement of Financial Transactions) transactions that surpass certain monetary levels.
7. Not Filing When Required — People who reach the required income limits or who engage in certain financial transactions must file their income tax returns. Notices, interest, and fines may result from failing to file even when you are eligible. Furthermore, failing to file could limit one’s capacity to collect reimbursements or carry forward losses.
If you’re looking to complete your income tax return filing by 15th September 2025 and are looking for guidance and assistance, connect with the best chartered accountants for tax filing. It’s important to ensure accuracy, compliance, and timely submission when filing tax returns