ITR Filing Mistakes That Reduce Tax Deductions: Common Errors to Avoid
PRITI SIRDESHMUKH- Apr 29
- 10 min read
Updated: May 2
Filing your Income Tax Return (ITR) correctly is essential for claiming all eligible tax deductions and avoiding penalties. Many common mistakes can reduce the deductions you’re entitled to, delay processing, or even lead to the rejection of your return. These errors can also result in penalties or missed opportunities for tax savings.
Understanding the typical filing mistakes and how to avoid them ensures you maximize your deductions and file your return without complications.
Table of Content
The Impact of ITR Filing Mistakes on Tax Deductions
When filing Income Tax Returns (ITR), every small mistake can have a significant impact on your eligible tax deductions. These deductions, which can reduce your taxable income, are crucial in minimizing your tax liabilities. However, failing to follow the correct process or making errors in documentation can result in reduced or even denied deductions. This may not only increase your tax burden but also lead to delays, penalties, or rejections of your return. It's essential to understand the most common mistakes people make while filing ITR, especially those that affect deductions, to avoid any financial setbacks.
By ensuring accuracy in filing and following all prescribed steps, taxpayers can fully benefit from the available deductions, ensuring a smoother tax filing experience.
Selecting the Wrong Tax Regime or Not Opting Correctly for Deductions
One of the most common mistakes in ITR filing is selecting the wrong tax regime or failing to opt correctly for deductions. Starting from AY 2024-25, the new tax regime has become the default option, offering lower tax rates but restricting the ability to claim most deductions under Chapter VI-A (like 80C, 80D, etc.), except for a few specific deductions such as 80CCD(2), 80CCH, and 80JJAA.
Taxpayers must explicitly choose between the old and new tax regimes, as they offer different benefits. If you wish to claim deductions under sections like 80C or 80D, you need to select the old tax regime in the ITR form. Failing to make this choice will lead to disallowance of these deductions, leaving taxpayers with a higher tax liability.
It’s important to be aware of this distinction while filling out your return. Many taxpayers, especially those new to the process, might miss this step, inadvertently opting for the new tax regime, which could reduce their overall tax savings.
How Deductions Work in the New Tax Regime
In the new tax regime, the tax rates are reduced, but most of the popular tax-saving deductions, such as those under sections 80C, 80D, and 80G, are not allowed. However, there are still a few exceptions where deductions can be claimed:
Section 80CCD(2): Employer’s contribution to the NPS is still eligible for deduction.
Section 80CCH: Contributions made towards the pension fund under specific schemes are deductible.
Section 80JJAA: Deduction for new employment-related expenses (like hiring of new employees) is still allowed under the new regime.
This system is ideal for taxpayers who do not have significant deductions to claim. The main advantage of the new regime is the simplicity of the process, as it avoids the need to track and manage tax-saving investments. However, it is essential to carefully evaluate whether the new tax regime is beneficial, based on your individual financial circumstances.
How Deductions Work in the Old Tax Regime
The old tax regime offers several tax-saving opportunities that are not available under the new tax regime. Under this regime, taxpayers can claim a wide range of deductions that significantly reduce their taxable income:
Section 80C: Allows deductions up to ₹1.5 lakh for investments in schemes like PPF, EPF, NSC, life insurance premiums, and more.
Section 80D: Provides deductions for premiums paid for health insurance for self, family, and parents.
Section 80G: Deduction for donations to eligible charitable organizations.
Section 24(b): Allows for a deduction of up to ₹2 lakh on home loan interest payments.
This regime is more suited for individuals who have made tax-saving investments throughout the year. If you are someone who actively invests in schemes eligible for deductions or makes significant contributions to pension or health insurance, the old tax regime might offer more tax-saving benefits. However, remember that to fully benefit from these deductions, you need to select the old tax regime while filing your return.
Providing Incorrect or Inconsistent Personal Information
When filing your ITR, providing accurate personal information is critical. Mismatched or incorrect details, such as your PAN, Aadhaar, or date of birth, can lead to errors in processing and even result in the rejection of your return. It's crucial to ensure that the personal details entered in your ITR form match the details in your official records. Pay special attention to your PAN-Aadhaar linkage, as discrepancies between the two can lead to issues in validating your return and processing your refund.
Not Disclosing All Bank Accounts and Income Sources
Failure to disclose all active bank accounts and income sources is a mistake that can lead to penalties and tax notices. All bank accounts where you receive income, including salary, interest, and dividends, must be disclosed in your ITR. Moreover, if you have multiple income sources—such as rental income, capital gains, or freelance earnings—ensure that they are fully reported. Tax authorities cross-verify the details you submit against Form 26AS and the Annual Information Statement (AIS), so omitting income could trigger scrutiny and cause deductions to be disallowed.
Selecting the Incorrect ITR Form
Choosing the wrong ITR form can lead to your return being marked as defective, causing delays in processing and loss of deductions. For example, if your income is taxed at special rates (under section 115BB for capital gains), ITR 1 or 4 would not be applicable. Ensure that you select the correct form based on your income category and deductions. Filing with the wrong form may prevent the correct deductions from being processed, resulting in missed benefits.
Not Verifying the ITR After Filing
One of the most common mistakes taxpayers make is failing to verify their ITR after submission. Once your ITR is filed, you must verify it within 30 days to ensure it is processed. Without verification, your return will be considered invalid, and the deductions you claimed will not be processed. Verification can be done electronically through Aadhaar OTP, net banking, or by mailing a signed copy of the ITR-V to the Income Tax Department.
Missing the Filing Deadline
The filing deadline for ITR is usually set for July 31st of each assessment year for individual taxpayers. Missing this deadline can result in penalties and interest charges under sections 234A, 234B, and 234C of the Income Tax Act. Late filing can also disqualify you from claiming certain deductions and may cause delays in receiving refunds. To avoid penalties and ensure your deductions are honored, it is crucial to file your return within the prescribed timeline.
Claiming Excess Deductions Without Proper Documentation
Claiming tax deductions under sections like 80C, 80D, or 80E without proper documentation is a mistake that can attract scrutiny from the tax authorities. It is important to have valid supporting documents such as receipts, certificates, or proof of payment to substantiate your claims. If you claim deductions without providing proof, you risk having them disallowed, leading to tax liabilities and possible penalties.
Not Reconciling Income and TDS Details with Form 26AS and AIS
Form 26AS contains details of TDS (Tax Deducted at Source) that has been deducted by your employer, bank, or other deductors. It's essential to reconcile your income and TDS details with Form 26AS and the AIS (Annual Information Statement) to ensure that the amounts you claim are accurate. Any discrepancies between the information in your ITR and Form 26AS can lead to a reduced refund or an additional tax demand. Always ensure that the TDS and income figures match these documents before submitting your return.
Ignoring Notices or Mismatches Highlighted by the Income Tax Department
The Income Tax Department often sends notices if there are discrepancies in the information provided in your return. Ignoring these notices or failing to respond can lead to penalties, interest, or disallowance of deductions. It's important to promptly address any mismatches or queries raised by the tax department. The Finance Bill 2025 mandates that mismatches between your current ITR and previous years will be scrutinized to detect inconsistencies. Therefore, timely responses to notices are crucial for avoiding penalties.
Bank Account Validation Errors
Before filing your ITR, it's essential to ensure that the bank account details you provide for receiving your refund are correct and validated. If the account details are incorrect or unvalidated, your refund may be delayed or rejected. Ensure that your bank account is linked correctly in the "My Profile" section of the Income Tax portal before filing your return. Verification and validation of bank details can help avoid any issues with refund processing.
Additional Tips to Avoid Deduction-Reducing Mistakes
Double-check your assessment year and financial year details to avoid confusion.
Aggregate your income accurately if you have multiple employers, ensuring that all sources are accounted for.
Keep proper documentation for HRA and other allowances to avoid deductions being disallowed.
Pay your advance tax on time to avoid additional interest and penalties under section 234B and 234C.
Conclusion
By being mindful of the common mistakes outlined above, taxpayers can maximize their eligible deductions and avoid unnecessary penalties or delays. Filing a well-checked, accurate ITR not only ensures smooth processing but also protects against unnecessary complications during tax assessment. Avoiding these mistakes can make a significant difference in your tax filing experience, ensuring you keep what you're entitled to and avoid unnecessary hassles with the tax department.
FAQs
What happens if I select the wrong tax regime while filing my ITR?
Selecting the wrong tax regime can have significant consequences. The new tax regime, which is the default from AY 2024-25, restricts the ability to claim most tax deductions (like those under Section 80C, 80D, etc.). If you intend to claim deductions but fail to opt for the old tax regime, your deductions will not be allowed, potentially resulting in a higher taxable income and a larger tax liability. It’s crucial to carefully choose your tax regime before filing to ensure you're eligible for the deductions you're entitled to.
Can I change my tax regime after filing my ITR?
Unfortunately, once your ITR is filed, you cannot change your tax regime. If you realize that you have selected the wrong regime after submission, the only option is to file a revised return. This is why it's essential to carefully review your eligibility for deductions and select the tax regime that benefits you the most before filing.
How do I know if I’m selecting the right ITR form?
Choosing the correct ITR form depends on your income sources. For instance, if you're a salaried individual with no additional sources of income, ITR 1 (Sahaj) is appropriate. However, if you have business income or income from more complex sources (like capital gains or foreign income), you must opt for forms like ITR 3 or ITR 4. Incorrectly selecting an ITR form can lead to your return being considered defective, delaying processing and potentially causing issues with claiming your deductions.
What should I do if my bank details are entered incorrectly in the ITR?
Incorrect bank account details entered during ITR filing can lead to refund failures or delays in receiving your refund. Before filing, ensure that your bank account number, IFSC code, and other details are accurately entered in the "My Profile" section of the Income Tax portal. If you realize the mistake after submission, you’ll need to amend the details before proceeding further, or the refund might not be credited to your account.
Why is it important to disclose all my income sources in the ITR?
Full disclosure of all income sources (including salary, interest, rental income, capital gains, and freelance income) is essential for an accurate and compliant tax return. If you fail to disclose any income, it could be detected during scrutiny or through cross-referencing with Form 26AS or the Annual Information Statement (AIS), leading to penalties and disallowance of related deductions. Furthermore, concealing income can result in the Income Tax Department raising tax demands or initiating an inquiry, which can be a time-consuming and costly process.
How can I avoid delays in processing my ITR?
To avoid delays in processing your ITR, ensure that the return is filed accurately, with all required details correctly filled out. It is equally important to file your return on time—before the due date (31st July 2025 for most individuals). After filing, verify your return within 30 days of submission, as an unverified return is considered invalid, and any deductions claimed will not be processed. Delays in filing or verification could also lead to penalties and interest charges.
What should I do if I made a mistake while filling personal details like PAN or Aadhaar?
A mismatch in personal details such as PAN, Aadhaar, or date of birth can cause errors in filing, resulting in the rejection of your return. PAN details must exactly match those in your Aadhaar database, and discrepancies will result in a failed validation. If you find an error, correct it before filing to prevent delays in processing or potential rejections. In case the mistake is identified after submission, a revised return can be filed with the corrected details.
Can I claim deductions without providing supporting documents?
No, you cannot claim deductions without having the necessary supporting documents. Deductions under sections like 80C, 80D, 80E, and others require you to maintain and provide valid proof (e.g., insurance premiums, tuition fees, medical bills, etc.). Failing to provide the required documents could attract scrutiny, resulting in the disallowance of your claimed deductions and potential penalties for incorrect claims. Always ensure you have all necessary documents available and properly organized.
What is the consequence of filing after the due date?
Filing your ITR after the due date (typically 31st July 2025 for individuals) has serious implications. Not only will you be subject to a late filing fee (under Section 234F), but you may also lose eligibility for certain deductions, and interest could be charged on the outstanding tax. Additionally, late filing can lead to delays in receiving your refund, or worse, your return might not be processed at all, resulting in further complications.
How do I reconcile my income and TDS details with Form 26AS?
Form 26AS contains a summary of all the TDS (Tax Deducted at Source) deducted by your employer, banks, or other entities. It’s essential to cross-check your income and TDS details against the amounts shown in this form to ensure everything matches. Any discrepancies between the TDS reported in Form 26AS and your ITR may lead to tax demand or delays in processing your refund. Reconciling these details ensures that your deductions are correctly accounted for and can prevent issues during the assessment process.
What happens if I ignore notices from the Income Tax Department?
Ignoring notices from the Income Tax Department can have serious consequences. If the department identifies inconsistencies or discrepancies in your ITR, they will issue notices asking for clarification or additional documentation. Failing to respond to these notices can lead to penalties, further scrutiny, and potentially the disallowance of deductions. Always respond promptly to any notices to avoid escalating issues with your return.
How do I validate my bank account for ITR filing?
Bank account details provided in the ITR must be validated under the "My Profile" section of the Income Tax portal. If your bank account is not validated, your refund may be rejected or delayed. Before filing your return, double-check that the bank account details are correct, and ensure your bank has linked your account to your PAN for smooth processing. If any issues arise, update your details promptly to avoid refund-related problems.
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