Common Errors in Claiming Deductions and How to Avoid Them (FY 2024-25)
Bhavika Rajput- May 13
- 9 min read
Claiming tax deductions can be a confusing process, especially with the frequent changes to tax laws. For FY 2024-25, the amendments introduced under the new tax regime have added another layer of complexity. With the new tax regime being the default option, many taxpayers are unaware of the limitations and requirements for claiming certain deductions. Let us explore the most common errors made while claiming deductions and practical guidance on how to avoid them, ensuring that you can file your returns accurately and efficiently.
Table of Contents
What are the Common Errors in Claiming Deductions and How to Avoid Them
Common errors in claiming deductions often stem from a lack of awareness about the changes in tax laws and the eligibility criteria for different tax regimes. A major mistake is trying to claim deductions under the new tax regime, where most deductions are not allowed, except for specific ones like employer contributions to NPS. Other frequent errors include failing to update bank account details on the e-filing portal, selecting the wrong ITR form based on income type, and incorrectly applying deductions like HRA or standard deductions under the wrong tax regime. To avoid these mistakes, taxpayers should carefully review their eligibility, select the correct ITR form, ensure all required information is updated on the e-filing portal, and understand the impact of choosing the new or old tax regime for their deductions.
1. Confusion Between Old and New Tax Regimes and Deduction Eligibility
One of the most common mistakes taxpayers make when claiming deductions is confusion between the old and new tax regimes. The new tax regime, introduced in FY 2020-21 and made the default option starting AY 2024-25, offers lower tax rates but disallows most deductions under Chapter VIA of the Income Tax Act, such as those under Sections 80C, 80D, 80E, and 80G. The only exceptions are Section 80CCD(2) (employer’s contribution to NPS) and Section 80JJAA (deductions for new employment generation). If taxpayers wish to claim these deductions, they must opt for the old tax regime explicitly. This can be done by selecting the “Yes” option under the “Opting out of New Regime” field in the ITR form.
To avoid errors, it’s crucial to review your deduction eligibility carefully before filing. If you prefer the old tax regime, make sure to manually select it while filling out the ITR. Failure to do so will automatically place you under the new regime, rendering most of your deductions ineligible. In addition, it's important to understand that once you opt for the new tax regime, you will not be allowed to claim deductions for items such as HRA, home loan interest, or even the standard deduction unless specified.
2. Bank Account Details Validation Errors While Filing ITR
A common issue faced by many taxpayers during ITR filing is the incorrect or missing bank account details, leading to validation errors. Inaccurate bank details can cause delays in the processing of refunds, and in some cases, the rejection of the return altogether. To avoid such errors, taxpayers should ensure that their bank account details are updated correctly on the Income Tax e-filing portal under the "My Profile" section, specifically in the "My Bank Account" tab.
Make sure the bank account is active and linked to your name. Double-check the IFSC code, account number, and other details for accuracy. Also, verify that the bank account is eligible for refunds, meaning it should be linked to your PAN and Aadhaar for easy processing. If you are filing returns for the first time or have changed your bank account, ensure that the new account details are accurately reflected in the portal before submitting the ITR form.
3. Incorrect ITR Form Selection Based on Income Type
Selecting the correct ITR form is critical for ensuring that the tax filing is processed correctly. Many taxpayers make the mistake of selecting ITR 1 or ITR 4 when their income is subject to special tax rates, such as income under Section 115BB (tax on winnings from lottery, gambling, etc.). If the taxpayer has income that falls under special tax rates or income from sources like capital gains, business profits, or foreign assets, they must file either ITR 2 or ITR 3, not ITR 1 or ITR 4.
To ensure compliance, it’s essential to know your income type. If you have salary income along with capital gains, business income, or income under special rates (e.g., winnings from gambling), you need to file ITR 2 or ITR 3 based on the specific sources of income. This ensures that all income is reported correctly and that tax is calculated according to the applicable provisions. Filing the wrong form could lead to rejection or incorrect tax calculations.
4. Incorrect Claim of Standard Deduction and Other Allowances
Under the new tax regime, many taxpayers mistakenly claim deductions like House Rent Allowance (HRA), Leave Travel Allowance (LTA), and home loan interest, which are not available under the new tax regime. This happens because taxpayers often assume that these allowances are still applicable under the new regime, leading to incorrect claims.
The new tax regime allows for a standard deduction of Rs. 75,000 for salaried individuals, but most allowances and deductions are not available. To avoid claiming these deductions incorrectly, it’s essential to carefully read the eligibility criteria for each tax regime before filing. If you want to claim HRA, home loan interest, or other allowances, you must opt for the old tax regime. Always review your income sources and deductions to ensure that they align with the regime you have selected.
5. Claiming Deductions Without Proper Salary Details
A frequent error occurs when taxpayers claim deductions under Section 80CCD(2) (employer’s contribution to NPS) without providing the correct salary details in the ITR form. This typically happens when the ‘Basic Salary’ field is not filled out accurately, which results in a zero eligible amount for deductions under Section 80CCD(2).
To correctly claim deductions under this section, ensure that the salary income is properly entered, especially the basic salary component. This field is crucial because the eligible amount for NPS contributions is calculated based on a percentage of the basic salary. If this information is missing or incorrect, it can lead to missed deductions, thereby increasing your overall tax liability. Always double-check your salary details before submitting the form.
6. Not Verifying Return Properly
Failure to verify your income tax return properly is a common error that can delay the entire filing process. While many taxpayers assume that a Digital Signature Certificate (DSC) is mandatory for verification, this is not true for all cases. As of 1st April 2024, taxpayers have the option to verify their return using either an Electronic Verification Code (EVC) or DSC, even in cases where an audit is required under Section 44AB.
To avoid this error, ensure that you choose the correct verification method that suits your case. EVC is typically sufficient for most individuals, but DSC might be required for those filing under specific conditions, such as for audit cases. If verification is not completed, the ITR will remain unprocessed, leading to delays or even rejection. Always ensure that you complete the verification process after filing your return.
Summary Table: Key Deduction Changes for FY 2024-25 (New Tax Regime Default)
Deduction/Exemption | Old Tax Regime | New Tax Regime (Default from AY 2024-25) |
Section 80C (PPF, NSC, ELSS, etc.) | Available up to Rs. 1.5 lakh | Not available |
Section 80D (Health Insurance Premium) | Available | Not available |
Standard Deduction (Salaried Individuals) | Rs. 50,000 | Rs. 75,000 |
House Rent Allowance (HRA) | Available | Not available |
Interest on Housing Loan (Self-Occupied) | Deduction up to Rs. 2 lakh | Not available |
Section 80E (Education Loan Interest) | Available | Not available |
Section 80G (Donations) | Available | Not available |
Section 80CCD(2) (Employer’s NPS Contribution) | Available | Available (Increased to 14% of salary) |
Conclusion
By understanding and avoiding these common errors, taxpayers can ensure their deductions are claimed correctly, leading to smoother and error-free tax filings. The detailed steps outlined in this blog, combined with awareness of the latest changes to tax laws, will help you navigate the complex filing process. Whether you're claiming deductions under the new or old tax regime, following these guidelines will ensure compliance and maximize your eligible deductions. Always double-check your ITR form, bank details, and salary information to ensure your tax filing is complete and accurate.
FAQs
1. What is the new tax regime for FY 2024-25?
The new tax regime, introduced as the default from FY 2024-25, provides concessional tax rates with no exemptions or deductions except for a few specified sections. This regime is intended to simplify tax calculations by offering lower tax rates in exchange for foregoing deductions like HRA, 80C, 80D, and others. However, taxpayers have the option to choose between the new tax regime and the old regime, where they can claim various deductions and exemptions, including those under Section 80C and 80D.
2. How can I claim deductions under Section 80C in the new tax regime?
Unfortunately, deductions under Section 80C (such as for PPF, NSC, and ELSS) are not available under the new tax regime. However, if you prefer to claim these deductions, you must opt for the old tax regime, which allows you to utilize this benefit.
3. What are the major changes in deductions under the new tax regime?
In the new tax regime, the most notable change is that most deductions, including those under Sections 80C, 80D, and 80E, are not available. However, certain deductions like the employer’s contribution to NPS (Section 80CCD(2)) and deductions for income from donations (Section 80G) are still allowed. The regime also offers a higher standard deduction of ₹75,000 for salaried individuals compared to ₹50,000 under the previous regime.
4. How do I validate my bank account details for ITR filing?
To avoid errors in ITR filing due to incorrect bank account details, ensure that you have updated your bank account details on the e-filing portal. This can be done under the "My Profile" section by adding a valid, active bank account number.
5. Why is my ITR form being rejected?
Your ITR form could be rejected for a variety of reasons, including selecting the wrong form based on your income type, incomplete or incorrect details, or discrepancies in the bank account information.
6. What are the consequences of choosing the wrong ITR form?
Choosing the wrong ITR form can lead to rejection of your return or delays in processing. For instance, taxpayers with income under Section 115BB or other special rates should avoid filing ITR 1 or 4 and should use ITR 2 or ITR 3 instead.
7. Can I claim HRA under the new tax regime?
No, the new tax regime does not allow the claim of House Rent Allowance (HRA). If you want to claim HRA, you will need to opt for the old tax regime. TaxBuddy’s AI-driven platform highlights these differences, making sure you claim the right deductions based on your choice of tax regime.
8. What is the eligibility for standard deduction in FY 2024-25?
Under the new tax regime, the standard deduction for salaried individuals has been increased to ₹75,000 for FY 2024-25. This is a welcome change from ₹50,000 in FY 2023-24.
9. How do I avoid errors in salary-related deductions?
To avoid errors in salary-related deductions like Section 80CCD(2) (NPS contributions), ensure that all salary details are correctly entered in the 'Schedule Salary' section of the ITR form. Missing or incorrect details in this section can result in the wrong deductions being applied.
10. Can I use a Digital Signature Certificate (DSC) for ITR verification?
Yes, you can use a Digital Signature Certificate (DSC) for ITR verification, especially for audit cases under Section 44AB. However, from FY 2024-25 onwards, taxpayers can also use an Electronic Verification Code (EVC) to verify their returns, simplifying the process for many.
11. What deductions are allowed under the new tax regime?
Under the new tax regime, the deductions available are minimal. The key deductions that remain are the employer's contribution to NPS (Section 80CCD(2)) and deductions for donations under Section 80G. The new tax regime is designed to simplify filing by removing most deductions in exchange for lower tax rates.
12. How do I opt for the old tax regime while filing my ITR?
To opt for the old tax regime while filing your ITR, select "Yes" in the “Opt-out” field in the ITR form under the Schedule ‘Personal Information’ or ‘Part-A General’.
13. How can TaxBuddy help me choose the right tax regime?
TaxBuddy simplifies the process of choosing between the old and new tax regimes. The platform automatically highlights the deductions available under each regime, helping you make an informed decision based on your financial profile. It also ensures that you don’t miss out on any tax benefits by selecting the correct tax regime that suits your needs.
14. Is TaxBuddy suitable for both salaried individuals and business owners?
Yes, TaxBuddy is designed to cater to both salaried individuals and business owners. Whether you're filing your return as a salaried professional or a business owner with complex income sources, TaxBuddy’s AI-driven platform guides you through the entire process, ensuring accurate deductions, easy filing, and compliance with tax laws.
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