Income Tax Return: Know the Demerits of Prefilled ITR

Income tax return

Income Tax Return: The finance minister revealed in her budget speech that pre-filled income tax returns, which previously included information on wages, tax payments, and tax deducted at source (TDS), will also provide information on capital gains on listed stocks, dividend income, and interest income from banks, post offices, and other sources. Rules requiring such organisations to provide such details to the tax department have been notified to encourage the pre-filling of such information. What exactly is this data, and what does it mean for the average taxpayer?

All Companies (listed and unlisted) must now apply taxpayer wise reports of the total amount of dividends distributed throughout the year. In case of banks, where interest charged or credited to a taxpayer exceeds  Rs 5,000 for the year, all banks (including cooperative banks), post offices, and deposit-accepting registered non-banking financial firms are required to disclose it. This will include interest on savings accounts, recurring deposits, and other similar accounts, with a total interest limit of Rs 5,000. In the case of joint holders, the interest must be recorded in the first holder’s name. It must be recorded in the name of the guardian in the case of minors.

Read Also: Income Tax Rates on individuals for FY 2020-21/ AY 2021-22

Depositories must report capital gains on listed shares, based on a FIFO (first-in, first-out) basis, with the cost of an IPO or off-market transaction set to zero, and the cost and selling price for on-market transactions set to day-end rates. Capital gains on mutual funds must be reported by registrars and share transfer agents. All of these must be recorded by the 31st of May. This means that your pre-filled returns will be unavailable on the tax department’s website until mid-June, and you will be unable to file your income tax return. These details will also be available in your e-filing account’s Form 26AS.

These entities must also provide you with a copy of the information they filed with the Income tax department. What happens if there is an error in the data? When it comes to capital gains on publicly traded stocks, you can adjust the purchase or selling prices before filing your tax returns.

Read Also: 10 common mistakes to avoid while filing ITR

Is this to say that you won’t be able to fix other errors when filing your taxes? If this isn’t entirely obvious, you should certainly ask the responsible party to clarify it. As a result, you can have to interact with several entities.

Considering previous experience attempting to get errors in TDS returns corrected by such bodies, this would undoubtedly be a challenge for many taxpayers unless an effective process is in place to ensure that any mistakes pointed out by the taxpayer are promptly rectified. If you are unable to correct the errors before the deadline, there is no allowance for an extension of the deadline for filing your tax returns due to delays that are not your fault. As a result, taxpayers must be able to make changes to their pre-filled tax returns.

Read Also: Income Tax Audit- Everything about increase in tax Audit limit

How can taxpayers be responsible for providing inaccurate information unless the pre-filled data is also correct?

The errors could be made not only by the information suppliers, but also by the income tax department. In the last week of March, a client who had filed her tax return in February received an email informing her that the bank interest information she had submitted was wrong. When comparing the two, the tax department was found to have taken the same bank interest twice. When asked how such a mistake could have happened, the bank’s tax head explained that, in addition to TDS returns, all banks received a letter on one day asking them to provide details on interest paid to all depositors in excess of Rs 5000. As a result, they had sent the tax department the same details twice: once in TDS returns, and again in response to this note. When comparing it to the tax return, it was found that the tax department have added both amounts.

Even if you are able to correct the information on the tax returns, your case is likely to be picked for verification or scrutiny due to the discrepancy, which is needless and avoidable harassment for no fault of your own.

Read Also : Income Tax Return: E- verify ITR through 6 ways

Taxpayers will now be required to not only compile information for their tax returns, but also to compare pre-filled information with their compiled information, as well as perform a similar exercise for TDS.

Also, due to the use of day-end rates and the fact that brokerage and other exchange costs may not have been factored in the pre-filled details, there is likely to be a difference in almost all of the figures for capital gains on listed shares. This will take a lot of time and effort, and rather than making life simpler for taxpayers, it will cause them more problems.

Read Also: Income Tax, TDS and Advance Tax on Dividend Income

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