Disclosures you must make in ITR to avoid a defective return

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An ITR is marked as defective when the Income Tax Department finds obligatory disclosures missing, making it legally non-enforceable. It is treated as no return filed at all, which can lead to penalties, delayed refunds, or additional audit. Taxpayers then have to correct and resubmit the return within a specified time, causing undue stress in compliance.

Important disclosures obligatory

Certain disclosures are non-negotiable for everyone. These are foreign assets and income, cryptocurrency or NFT transactions, unlisted shares, and any company directorship. In case your income crosses ₹1 crore, you must also provide a statement of assets and liabilities. Leaving these out makes your return defective, prompting the tax department to send a defective return notice.

Impact on taxpayers

A defective ITR impacts taxpayers beyond penalties. Refunds are withheld until a revised return is accepted, which can delay cash flows. It also increases the risk of further notices, which can attract unnecessary scrutiny from the authorities. For professionals and business owners, defective returns can complicate financial planning, affect credit applications, and even cause reputational issues with lenders who rely on accurate ITRs for rating.

Relief for small omissions

The tax department has relieved in some situations where there are trivial omissions. For instance, if foreign movable assets below ₹20 lakh had been left out in a non-negligent manner, punishment and prosecution would not be imposed. However, such leniency is not present in case of overseas immovable property, where nondisclosure is a grave offense. Taxpayers are therefore required to be careful not to confuse relief with blanket exemptions.

Importance of e-verification

Even after filing, your return is incomplete without e-verification. This must be done within 30 days of filing, failing which the ITR is treated as invalid. Many taxpayers make the mistake of filing but not verifying, leading to rejection. Bank account details also need to be validated to ensure refunds are processed smoothly. These small but critical steps prevent complications later.

Final takeaway

Filing an ITR is not just a question of reporting income—it's a question of openness. Leaving out such disclosures as foreign assets, directorships, or cryptocurrency can invalidate your return, with disastrous fiscal consequences. While some accidental minor blunders are pardonable, the best policy is exactness and thoroughness. Timely verification and strict attention to detail put your ITR in good order and protect you from future hassle.

FAQs

1. What if my ITR is defective?

When your ITR is deemed to be defective, it will be treated as though you have not filed a return. This may attract penalties, delayed refunds, and in some instances, further scrutiny by the tax department. You'll need to correct and re-file within the required time frame.

2. Can I rectify a defective ITR after due date?

No, if you do not make good and re-submit in the given time, your ITR is invalid. This can result in delay in filing penalties, carry forward loss of losses, and possible interest on tax payable.

3. What are the most common causes of a defective ITR?

Typical reasons include failure to report foreign assets, bitcoin transactions, directorships of companies, or failing to check the return after filing. Mistakes in reporting assets and liabilities or omission of bank account information for refunds also often lead to flawed filings.