Common Errors while Claiming 80C and 80D Deductions: ITR Filing Mistakes that Reduce Tax Deductions
- Nimisha Panda
- Apr 30
- 10 min read
Updated: May 2
Filing Income Tax Returns (ITR) correctly is essential for maintaining compliance with the tax laws and ensuring that all eligible deductions are claimed. Whether it's for claiming deductions under sections like 80C and 80D, or ensuring that your tax refund is processed without delays, every detail matters. Incorrect or incomplete ITR filings can lead to missed opportunities for deductions, penalties, and even scrutiny from the tax authorities. Let’s explores common mistakes that taxpayers make while filing their returns, specifically focusing on how these errors can reduce the tax deductions you are eligible to claim. By understanding and avoiding these pitfalls, you can maximize your eligible deductions and ensure a smooth tax filing process.
Table of Contents
Common Errors While Claiming 80C and 80D Deductions
Accurate filing of Income Tax Returns (ITR) is crucial to ensure taxpayers receive the full benefits of the tax deductions available under sections 80C and 80D. Section 80C offers deductions for investments in schemes like PPF, NSC, and ELSS, while Section 80D provides deductions for premiums paid towards health insurance policies. However, errors in claiming these deductions can lead to significant losses, including disallowance of the claim, penalties, or even an incorrect tax calculation.
Some of the most common errors include failing to submit proof of investment or premium payments, claiming deductions without proper documentation, or overestimating the investment amounts. These mistakes not only impact the taxpayer’s refund but can also trigger scrutiny by the tax department, which may cause delays or penalties. Ensuring correct and complete information on deductions is vital for avoiding these issues.
Selecting the Wrong Tax Regime or Not Opting Correctly for Deductions
Choosing the correct tax regime when filing your ITR is vital for claiming the correct deductions.
Is Tax Deduction Allowed in the New Tax Regime?
Under the new tax regime, which was introduced to simplify the tax structure, many popular deductions available under the old regime, such as 80C, 80D, and 80G, are not allowed. The new tax regime provides reduced tax rates in exchange for the removal of these deductions. Therefore, taxpayers must carefully consider whether they would benefit more from the new tax regime's lower tax rates or the deductions available under the old tax regime.
How Tax Deductions Work in the Old Tax Regime
In the old tax regime, taxpayers can claim various deductions, such as those under 80C (for investments like PPF and ELSS), 80D (for health insurance premiums), and more. However, if a taxpayer inadvertently selects the new tax regime while intending to claim deductions, these deductions will be disallowed, leading to a higher taxable income. Therefore, it is essential to select the old tax regime explicitly when claiming such deductions to avoid losing these tax-saving opportunities.
Providing Incorrect or Inconsistent Personal Information
Incorrect or inconsistent personal information is one of the most common errors during ITR filing. This includes mismatched details between PAN, Aadhaar, and the information entered in the ITR form. For example, if the PAN details provided do not match the Aadhaar details, the system may flag the return as incorrect, causing delays in processing and refunds.
Additionally, discrepancies in the bank account details, such as incorrect account numbers or IFSC codes, can result in the failure to receive refunds. Ensuring that all personal information is accurately provided and that it aligns with official records is crucial to avoid errors and delays.
Not Disclosing All Bank Accounts and Income Sources
When filing your ITR, it is important to disclose all active bank accounts and sources of income. Failing to do so can lead to discrepancies with the tax department’s records, which may result in penalties, additional taxes, or the disallowance of related deductions. For example, taxpayers must disclose income from all sources, including salary, interest, rental income, and capital gains, among others.
The Income Tax Department cross-verifies income and deductions with Form 26AS and the Annual Information Statement (AIS), both of which list all income and taxes deducted at source. Inaccuracies or omissions can lead to scrutiny, and the tax department may issue notices or disallow deductions. Properly disclosing all bank accounts and income sources ensures that all deductions are considered, and the return is processed smoothly.
Selecting the Incorrect ITR Form
Selecting the wrong Income Tax Return (ITR) form is a common mistake that can significantly impact the processing of your return and your ability to claim deductions. Each ITR form is designed for specific types of income and taxpayers. For example, ITR 1 is applicable to individuals earning income from salary, pension, or one house property, while ITR 3 is used for individuals with income from business or profession. Filing the wrong form can lead to a delay in processing, rejection, or an incomplete claim of deductions. It's essential to ensure that the form corresponds to your income sources and tax category. Incorrectly using forms such as ITR 1 when you are eligible for ITR 2 or ITR 3 can prevent the accurate reflection of deductions like those under sections 80C, 80D, and 80E, resulting in missed tax benefits.
Not Verifying the ITR After Filing
After submitting your ITR online, it is crucial to verify the return within 30 days for it to be considered valid. Failure to verify your ITR can render it incomplete, leading to a rejection of the filing. Verification is a necessary step to ensure the accuracy of the details provided and to confirm your submission to the Income Tax Department. Without verification, deductions claimed in the return, including those under sections like 80C and 80D, will not be processed. Taxpayers must either e-verify the return using Aadhaar, bank details, or by sending a signed copy of the ITR-V to the CPC office. Verifying the ITR promptly ensures smooth processing and avoids delays in claiming refunds or deductions.
Missing the Filing Deadline
Filing your ITR after the deadline, which is usually July 31st for most taxpayers, can result in significant consequences. Missing the due date may lead to penalties, interest on outstanding taxes, and, in some cases, disallowance of certain deductions. Late filing means the return will be classified as a belated return under section 139(4), and taxpayers may have to pay a penalty ranging from ₹1,000 to ₹10,000 depending on the delay duration. Additionally, if you file your return after the due date, certain deductions, such as those under sections 80C and 80D, may not be allowed, especially if they relate to investments or payments made after the assessment year has ended. Timely filing ensures that all eligible deductions are processed correctly.
Claiming Excess Deductions Without Proper Documentation
Claiming deductions under sections like 80C, 80D, and 80E without proper documentation is a risky practice that can lead to notices from the Income Tax Department. For example, when claiming deductions for life insurance premiums, contributions to provident funds, or medical expenses, valid proof must be provided to substantiate the claims. This includes receipts, bills, policy documents, and proof of payments. Failing to maintain and submit the necessary documents can lead to disallowance of these deductions and penalties for false claims. Taxpayers should ensure that all supporting documents are organized and available for reference in case of a tax audit or scrutiny.
Not Reconciling Income and TDS Details with Form 26AS and AIS
Form 26AS and the Annual Information Statement (AIS) provide a consolidated record of taxes deducted at source (TDS) and other financial details. It is crucial to reconcile the income and TDS details shown in your ITR with these forms before filing. Discrepancies between the information provided in the ITR and the details in Form 26AS can lead to discrepancies in the tax calculation, resulting in either a higher tax demand or delayed refunds. Furthermore, mismatches between income reported in your ITR and those found in the AIS could trigger an income tax notice. Ensuring all details align with Form 26AS and AIS is essential for a smooth filing process and avoiding penalties.
Ignoring Notices or Mismatches Highlighted by the Income Tax Department
Ignoring notices from the Income Tax Department or mismatches in the tax records can lead to serious consequences. These notices often point out discrepancies between your ITR and the records with the tax department, such as differences in income reporting or tax deductions. Failure to address these notices promptly may result in penalties, interest charges, or even disallowance of deductions that you may have legitimately claimed. It is crucial to respond to any communication from the tax authorities in a timely manner and provide clarifications or additional documents if necessary. Keeping track of notices ensures that your return is processed without issues and avoids further scrutiny.
Bank Account Validation Errors
Bank account details provided in the ITR form must be accurate and validated with the Income Tax Department. If the bank account information entered in the tax portal is incorrect or unvalidated, it can cause delays in receiving your refund or even result in refund rejections. Ensuring that your bank account is linked and verified under the "My Profile" section of the Income Tax portal is essential to avoid these issues. Incorrect or outdated bank details can also affect the processing of deductions that are directly related to refund amounts. Validate your bank account details before filing to ensure smooth processing and accurate deductions.
Additional Tips to Avoid Deduction-Reducing Mistakes
Double-check the correspondence between the assessment year and the financial year.
If you have income from multiple sources or employers, aggregate the income correctly.
Ensure proper documentation for HRA, medical reimbursements, and other allowances.
Pay your advance tax on time to avoid penalties and interest.
Keep track of the limits for deductions under sections like 80C, 80D, and 80E to ensure you do not exceed the allowable limits.
Conclusion
Accurately filing your ITR is essential to claim the deductions you're entitled to and avoid unnecessary penalties or delays. By understanding the common mistakes, such as selecting the wrong form, failing to verify the return, missing deadlines, and not maintaining proper documentation, you can ensure a smooth and efficient filing process. Always take time to double-check your return, reconcile income and TDS details, and verify all information to maximize your deductions and minimize the chances of any tax-related issues. By staying proactive and organized, you can secure the tax benefits you deserve.
FAQs
Q1. Can I claim deductions under 80C and 80D in the new tax regime?
In the new tax regime, most deductions under sections like 80C and 80D are not available. However, there are a few exceptions, such as contributions to the National Pension Scheme (NPS) under section 80CCD(2) and some other minor deductions. If you want to claim deductions under these sections, you must opt for the old tax regime.
Q2. What happens if I file my ITR after the due date?
If you miss the filing deadline, you can still file a belated return, but it may attract penalties, interest on outstanding taxes, and potentially the disallowance of certain deductions. Filing late also delays your refund and could result in increased scrutiny of your return.
Q3. How can I correct mistakes after filing my ITR?
If you notice an error after filing your ITR, you can file a revised return under section 139(5) within a specified period. This allows you to correct mistakes such as incorrect income, deductions, or tax calculations. Ensure the revised return is filed before the end of the assessment year.
Q4. Do I need to provide proof for all tax deductions?
Yes, it is essential to provide proof for all tax deductions claimed under sections like 80C, 80D, and 80E. Supporting documents such as receipts, bills, and certificates must be kept handy in case the tax department asks for them. Incorrect or inflated claims without proper documentation may lead to penalties or disallowance of deductions.
Q5. What are the common errors when selecting the ITR form?
Common errors when selecting the ITR form include using the wrong form for your type of income (e.g., ITR 1 instead of ITR 2 or 3), which can prevent you from claiming eligible deductions. Choosing the correct form based on your income sources and tax category is crucial for smooth processing.
Q6. Can mismatched TDS details lead to penalties?
Yes, mismatched TDS details between your ITR and Form 26AS can lead to penalties. The Income Tax Department cross-checks the TDS deducted by employers or banks against your ITR. If discrepancies are found, the department may issue notices, reduce your refund, or even impose penalties.
Q7. Is it necessary to verify the ITR after filing?
Yes, it is necessary to verify your ITR within 30 days of filing. If you fail to verify your return, it will be considered incomplete and not processed. This means any deductions claimed will not be processed, and your return may be treated as invalid.
Q8. How do I handle notices from the Income Tax Department?
If you receive a notice from the Income Tax Department, respond promptly and provide the requested information or clarifications. Notices typically highlight discrepancies between your filed return and tax records, such as income mismatches. Ignoring such notices can lead to penalties or disallowance of deductions.
Q9. What should I do if I have multiple sources of income?
When you have multiple sources of income, ensure you correctly aggregate all the income in your ITR. This includes income from salary, business, capital gains, and other sources. Failing to disclose all income can result in penalties and the disallowance of related deductions.
Q10. Can I use the same bank details for multiple ITR filings?
Yes, you can use the same bank account details for multiple ITR filings. However, ensure that the bank account details are up to date and validated in the Income Tax portal. Incorrect or outdated bank account details can cause delays in refunds or the rejection of your return.
Q11. What deductions can I claim in the new tax regime?
Under the new tax regime, most deductions under sections like 80C, 80D, and 80E are not available. However, you can still claim deductions for NPS contributions under section 80CCD(2) and a few other minor deductions. If you want to claim full deductions, consider opting for the old tax regime.
Q12. What should I do if my bank account is not validated?
If your bank account is not validated in the Income Tax portal, you need to update your bank account details under the “My Profile” section. Ensuring that the bank details are validated is crucial to receiving any refunds and ensuring smooth processing of your return.
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