What Disclosures and Precautions to Be Made While Filing Your ITR

The taxpayer has to communicate the details of his taxable income/loss to the Income tax Department. These details are communicated to the Income-tax Department in the form of return of income.

Filing Income Tax Return (ITR) is not just a legal obligation but also a crucial step in managing your finances and ensuring compliance with the Income Tax Act.

With increasing digital scrutiny and data interlinking by the Income Tax Department, it is essential to be transparent and precise while filing your returns. A small mistake or omission can lead to notices, penalties, or even prosecution.

Determining the Right Tax Return Form- The initial step is to find out the correct ITR form for your tax concern.

Ensure Accurate Personal Information

Incorrect personal details like name, address, or PAN can lead to processing delays. Double-check all personal information before submission.

• Use the pre-fill option on the income tax portal to avoid manual entry errors.

• Always cross-check pre-filled data before submitting.

• Update your details in PAN and Aadhaar databases if there are mismatches before filing.

Selection of correct tax regime

Finance Act 2020 introduced a new tax regime under Section 115BAC. If taxpayers choose to file ITR (income tax return) according to the new tax regime, they must forgo significant deductions and exemptions allowed under the existing or old tax regime.

Steps to Decide-

• Calculate tax under both regimes.

• Include all eligible deductions (for old regime).

• Use Income Tax Department’s tax calculator.

• Choose the one with the lower tax liability.

Unlisted stocks disclosure 

Individuals and HUFs filing ITR-2 or ITR-3, If holding unlisted shares of any company registered under the Companies Act, 2013, then the details of these shares are to be reported in ITR filing.

This disclosure is required even if the unlisted shares are held anytime during the financial year. Details like PAN of the company, opening balance of shares, shares acquired and transferred during the year, and closing balance of shares must be reported.

Non-disclosure may attract scrutiny or notices under income tax provisions (e.g., under section 139(9) for defective return).

Directorship details 

If a taxpayer is a director in any Indian or a foreign company, its disclosure must be made while filing a return of income. 

Not declaring directorship when applicable may result in your return being marked defective under section 139(9).

Schedule AL (Assets and Liabilities’)

Taxpayers earning more than Rs.50 lakh must provide additional disclosure under Schedule AL (assets and liabilities) in the ITR. The schedule requires disclosure of immovable as well as movable assets. Details of assets like land, building, jewellery and bullion, vehicles, bank accounts, investments in stocks and bonds, insurance policies, etc. and any corresponding liabilities are provided.

Now, that threshold has been increased. From FY 2024-25 onwards, only taxpayers with gross total income exceeding Rs 1 crore are required to furnish details of assets and liabilities in their ITR.

Disclosure of Foreign Assets

Residents are required to disclose the ownership of any foreign assets or beneficial interest held in any foreign assets in Schedule Foreign Assets (FA).

The foreign assets required to be disclosed foreign custodial accounts, foreign equity and debt interest, foreign depository accounts, shares held in any listed or unlisted foreign company, cash value/surrender value of foreign insurance contract, trusts created under any foreign country laws in which the assessee is a trustee, any other foreign asset.

These amounts should be mentioned after converting them into Indian rupees.

There are huge penalties for not disclosing any foreign assets or income; hence taxpayers should be meticulous in reporting all these transactions.

Verify Form 26AS, AIS & TIS

Form 26AS is a consolidated tax statement that includes all tax-related information linked to your PAN. Ensure that the details in Form 26AS match your income and tax payments to avoid discrepancies

The tax that gets deducted from your income and deposited with the government through your deductor would have been represented in your Form 26AS tax credit statement. Additional details regarding your financial transactions are been included in your AIS (Annual Information Statement) and TIS (Tax Information Statement). Whether all entries in such forms are accounted for in your ITR must get verified by you. 

Accurate and timely filing of your ITR is crucial for staying compliant with tax laws and avoiding penalties. By taking these precautions, you can ensure a smooth and hassle-free ITR filing process.