Monday, February 13, 2012

Some Common Tax Filing Mistakes

Many of us have been working for years now and file our tax returns diligently every year. But, the truth is, even the most cautious & meticulous individual is prone to making silly mistakes while filing his/her income tax or while declaring details to their employer. This post is about some of those silly mistakes, which might seem too-little-to-worry kind of mistake but, if big brother decides to investigate, they can impose heavy penalties and punishments. So, it is extremely important that we file our tax returns truthfully and most importantly without missing any details.

Before we begin – The Tax Calculation Process:

In almost 90% or more cases, the tax payer works for a company that pays a salary and issues a form-16 to the individual. The tax payment process works as follows:
1. Employer debits a small amount of salary every month as TDS (Tax Deducted @ Source)
2. Employer collects Investment & Expenditure proof for areas like Sec 80C, HRA, Medical Expenses etc
3. Employer processes all documents received from employees and calculates the Tax Liability and deducts the TDS accordingly so that the employee’s net tax to be paid to the Government is as close as possible to “0”
4. At the end of the financial year, employer issues the Form-16 to the Employee
5. Employee uses this Form-16 to file his/her tax returns
The process is simple, isn’t it? The important catch here is point no. 2. That is why I have intentionally typed it in both Bold and Italics…

What are those mistakes?

The most common mistakes that we do as tax payers when it comes to Income Tax Calculations are:
1. Not declaring Interest Earned from Bank Accounts, Fixed Deposits etc
2. Double Declaration of Expenses like HRA, Medical Bills, etc
3. Not declaring other sources of income like Gifts
4. Double Calculation of Standard Deduction

Lets take a look at them one by one

1. Not declaring Interest Earned from Bank Accounts, Fixed Deposits etc

This is probably the simplest and most common mistake we do every year. Yes, you read me right. You need to include the Interest earned from your Savings Account, Fixed Deposits, Recurring Deposits etc as “Income from Other Sources”. You may ask me, Come On Anand, the interest I earn on my savings account is probably less than One Thousand rupees in a year. Should I still declare it as an income? Unfortunately, Yes. Irrespective of the amount involved, even if it is only One Hundred Rupees, you need to declare that as an income and pay the income tax due on it, even if it is just One Rupee.

TO-DO: Collect an Interest Earned statement from your Bank on all your accounts that might earn an interest (like Savings Account, Fixed Deposit, Recurring Deposit etc) and declare the amount as “Income Earned”

2. Double Declaration of Expenses like HRA, Medical Bills, etc

These days, both spouses working and that too in two different company’s is very common. Most company’s only ask for Xerox copies of documents like Medical Expenses, House Rent Proof, Investment Proof like Insurance Premium Receipt, Childrens Education fees etc. So, in such cases, some couples submit a copy each in their respective company’s. in all such cases, company’s take these documents as true declarations from their employees and calculate the tax liability according to it. In reality, for a single expenditure two people are claiming tax rebates. Which is obviously wrong.

If you are someone who asks, “Anand, I did not know about such a rule. If I did it by mistake, will I still be in trouble?”

Yes, you will be in trouble. Unfortunately for us the saying “Ignorance is Bliss” doesn’t hold true when it comes to our IT Department. You are liable for all mistakes irrespective of whether you did it intentionally or inadvertently.

If you are one of those smart guys that asks “We work in two different company’s. is there any way that our company or even the IT Department find this?”

In all probabilities they wont. But, if you are one of those unlucky guys (If you are someone like me, who always ends up on the unlucky end of everything) would you want to take that chance?

TO-DO: Declare each investment/expenditure only once. If both the husband and wife are sharing the expenditure, make sure that you share the declarations as well. For ex: If you have two insurance policies, each one declares one of the premiums. Or, if you have two kids, each person declares the school fees paid on one kid.

3. Not declaring other sources of income like Gifts

Today is Feb 13th and tomorrow is Valentines Day. If you are one of those loving lovers/prospective husbands etc etc who gift your fiancé/lover a costly gift, you may be causing some real trouble for your would-be wife.

Whoa!!! Did I just say that?

Yes, Of Course I did. As per the Indian IT Laws, any gift that is worth more than Rs. 50000/- in value has to be considered an income and will be clubbed along with your income.

So, if you got your fiancé a diamond engagement ring worth more than Rs. 50,000/- then your prospective bride to be has to pay taxes on the value of the gift.

Did I just dampen your Valentine Day Spirit? If so, Please Forgive Me. I would suggest you get a gift that isn’t worth more than Rs. 50,000/- and wait until your wedding to get those costly luxurious gifts to your wife. The fact here is that, the money you spend on the gift is your hard earned money, for which you have already paid Income Tax. So, there is practically no point in paying tax on something for which you already paid your taxes. Nonetheless, a rule is a rule.

However, this rule doesn’t apply under the following scenarios:
a. If the gift was received during a Marriage
b. If the gift is being given/taken from a family member which includes all direct blood relatives like siblings, spouse, parents, spouse’s siblings, spouse’s parents, children of any of these people.

TO-DO: Include details of all Gifts received from non-family members as income from other sources.

4. Double Calculation of Standard Deduction

This is a very rare scenario but one that can do a lot of damage. Let me explain. In 2007 August, I resigned from one company and joined another. Since, I had earned salary income from two employers during a single financial year, I had two form-16’s. Doesn’t sound complicated, or does it?

Unfortunately, both my employers had calculated a “Standard Deduction” of 1.5 lakhs (At that time) while calculating my tax liability. But, when I combined both my form-16’s, I had to shell out a large sum of money from my pocket to pay-off the remaining taxes. The problem here was, both my employers had calculated my TDS and deducted it after considering the standard deduction. The mistake on my part here was that, I did not declare my income from the previous employer to my new employer. As a result, I ended up paying a lumpsum from my pocket instead of it being deducted from my salary as small amounts.

TO-DO: If you switch jobs, make sure you submit details of previous income to your current employer so that, they don’t miss it.

Rationale: The Extra Income Tax you will end up paying, if you are careful in ensuring accuracy in the above mentioned points will be a few hundred or in some cases, a few thousand rupees. If you think about the trouble we will be in if authorities scrutinize our tax papers, this few thousand rupees isn’t even worth 1% of the trouble…

Happy Tax Filing!!!


  1. What if I haven't declare previous employer details, still can I file tax returns?

    1. You can do it but it will be incorrect because part of your income is not reflected in the tax filing and hence you will be paying lower taxes than what you are supposed to.

      If caught, you will be penalized for not declaring the prev employer details.


  2. Hey Anand, I worked in a company for just 2 months last year and later quit the company to pursue my master's degree. I had been paid salary for 2 months with tax deduction along with the salary. Now my question is, should I file tax for that this year?

    1. anonymous - As you worked just 2 months, in all probabilities you may not have gotten enough income to fall into the taxation brackets. However, if TDS was deducted and you want a refund, YES you need to file your tax returns to get the money that was deducted as tax from your income

      Read my book:

      It explains everything you need to know about Income Taxes.

    2. Thanks a lot Anand. I will surely go through book and get back to you if I have any other doubts.

    3. Hi Anand. Yes, as you said I don't fall into the tax slab as the income I earned for 2 months is much less than 2 lacs . So now is it mandatory to file IT return eventhough I don't want the refund of TDS?
      By the way the pdf version has only 10 pages and how can I buy the full book?

    4. Anyone who earns an income during a financial year is expected to file his/her tax returns. If you dont want the refund of the TDS you can skip the tax filing but filing it will be a good idea because in future when you go for a home loan or any other loan, proof of filing taxes would be useful.

      The pdf has only 10 pages because it is the preview. On the screen you will see a buy now button on the top right hand side. click that button and pay the price of the book using your credit/debit card to download the full pdf book. Alternately if you want to pay in rupees, drop me an email and I will send you my bank account details. You can transfer the price in rupees and I will send the pdf book to your email id.


  3. Thanks Anand for valuable information.
    If I sell a mutual fund after five year .Is its capital gain to be declared .what will be right ITR for me. I don't trade any instruments within an year. Please advise. Thanks once again.

    1. No, Mutual Fund Sales after 1 year do not attract capital gains

  4. In my case,the employer deducted IT Rs.40000,but as per my calculations it should be 24000(approx.figure) only.They haven't calculate considering my savings.May be they have received it late. My question is if my savings not reflected in Form16.What should i do to claim my refund??

    1. You can include the additional savings and deductions while filing taxes. This is very common and not everything is mentioned in the form 16 issued by the employer. Sign up for a tax filing service, they can help you with this


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