Salaried taxpayer? Know how to pick the right ITR form, avoid common errors

ITR filing 2024: Failing to file ITR within the stipulated time can lead to consequences.

Soon, employers will start issuing Form-16, paving the way for salaried taxpayers to kickstart their income tax return (ITR) filing process.

It is best not to leave the exercise for the last minute to avoid hurried filing and delays due to glitches on the income tax return-filing portal.

Once you have all your documents in order and tally the details with Form 26AS and Annual Information Statement (AIS), you can start the process of filing your returns.

ITR-1 vs ITR-2

Step one is to select the right ITR form—salaried individuals have to choose between forms ITR-1 and ITR-2. The former is essentially a simple form that can be used by only resident (and ordinarily resident) individuals with income of less than Rs 50 lakh, salary or pension income, one house property, agricultural income of up to Rs 5,000 and income from savings or fixed deposits, dividends and family pension.

Other salaried individuals—those who do not have income from business or profession to show—will have to use ITR-2. For instance, if you are a resident but not ordinarily resident (RNOR) or non-resident individual or have made capital gains or losses, are a director in a company, own unlisted shares or ESOPs, maintain a foreign bank account or any other assets outside India, you will have to use ITR-2 and not ITR-1.

“Not using the correct form could mean failure to make the disclosures that are needed. For example, if you have made capital gains but file returns using ITR-1 instead of ITR-2, you could get a notice for non-disclosure from the income tax department. Selecting the wrong form could also render your return ‘defective’,” says Mousami Nagarsenkar, Partner, Deloitte India.

This apart, salaried taxpayers need to bear several important points in mind while filing income tax returns.

Also read: Income-tax filing: Should you file your returns in April or wait until July 31?

Do not claim deductions you are not entitled to receive

It is possible that some unscrupulous tax consultants could reach out to you via social media or phone calls with offers to maximise your tax refunds by fraudulently inflating your tax deductions. Beware of such dubious ‘services’. Thanks to AIS, which captures all your financial transactions, trying to claim fake deductions in the hope of maximising tax refunds could be a futile exercise.

As Moneycontrol had pointed out earlier, the income tax department has been using technology to weed out such suspicious tax deductions and you are bound to land in a soup if you give in to the lure of quick money.

Switched from new to old regime? Ensure fool-proof documentation

The new, minimal tax exemptions regime was declared the default tax regime starting from financial year 2023-24. There is a chance that this could cause inconvenience to salaried employees, who may have missed selecting the old, with-deductions system as their regime of choice while submitting their proposed investment declarations to their employers in April 2023.

Now, salaried taxpayers can switch between regimes every year and also at the time of filing returns. However, this might pose some practical hassles. “Since the data in Form-16 will not tally with your returns in such cases, there is a possibility that it could give rise to queries although you are not in the wrong,” says a chartered accountant who did not wish to be identified.

“Over the next few months, we will figure out how the I-T department deals with such cases as we do not know what systems they have in place at their end to resolve such issues,” says the CA. “At your end, ensure that you maintain all proofs to back your deduction claims in order to address any queries that the department might send your way.”

Also read: Want to stick with the old income-tax regime? Don’t forget to fill this form first

Report foreign bank accounts, ESOPs in ITR-2

Several Indian employees, particularly from the IT sector, are often deputed abroad either by Indian employers or multinational companies. “Bank accounts for such employees are opened in these destination countries. Some are under the impression that if those accounts do not have any transactions during the year, once they return to India (and regain their resident and ordinarily resident status), they need not disclose the details in their ITR. However, the fact is, you have to make these disclosures even if your accounts contain no deposits,” says Chetan Chandak, Director, TaxBirbal, a Pune-based tax consultancy firm. Non-disclosure of foreign assets can attract a penalty of Rs 10 lakh and, in rare cases, even criminal punishment under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.

Calculate your income tax for FY 2024-25

You will have to provide details in the foreign assets (FA) schedule in the ITR forms. “Often, employees are entitled to a foreign parent company’s ESOPs (employee stock options), but they think that if they have not sold these, they need not make disclosures, but this is a flawed perception. If you happen to own any foreign assets—ESOPs or shares of foreign companies—then you will have to file a return even if you have no taxable income,” says Chandak.