Tax filing: Wrong ITR form, faulty disclosure of crypto gains, foreign assets could land you in a soup | Simply Save

July 31 – the due date to file income tax returns for the financial year 2022-23 (and assessment year 2023-24) – is less than two weeks away.
If you have not completed the exercise already, there is every reason to hurry and not wait until the very last minute.

It is not uncommon to encounter glitches on the income tax department’s official e-filing portal closer to the due date, as many tax-payers log in to complete the process.

Moreover, you also run the risk of missing out on reporting some incomes that could lead to notices from the income tax department. Or, you could forget to claim deductions that you are eligible for, which could push up your tax outgo.

Also read: ITR filing: Salaried tax-payer? Know how to choose between forms ITR-1 and ITR-2

Choosing the right income tax return form applicable to you is also crucial – for instance, if you have cryptocurrency transactions to show in FY 2022-23, you will have to make the disclosures in this year’s returns for the first time. You cannot use ITR-1 and ITR-4 for the purpose – you will have to choose either ITR-2 or ITR-3.

To know more about the mistakes that could land you in a soup, Moneycontrol spoke to Mayank Mohanka, Partner, SM Mohanka and Associates.

Also read: Moneycontrol's guide for filing income tax returns for FY 2022-23 (AY 2023-24)

Here’s a summary of what Mohanka said:

- Not filing returns is one of the major mistakes that many individuals make. Under the bona fide belief that their taxable income is below the Rs 2.5 lakh basic exemption threshold, many do not file returns.

- However, this exemption from filing returns is not applicable if their income falls below the basic exemption threshold after factoring in deductions under section 80C, 80D and so on. For instance, if your income is Rs 4 lakh and you claim deductions worth Rs 1.5 lakh, your taxable income will fall below the threshold. But you will still have to file your income tax return. Not doing so could mean receiving an I-T notice.

- In addition, if your electricity bill amounts to more than Rs 1 lakh in a financial year or your foreign travel expenses exceed Rs 2 lakh, you will have to file your return even if your income does not exceed the basic exemption threshold.

- If you hold any foreign assets – ESOPs or shares of foreign companies – even for a single day, then you will have to file a return even if you has no taxable income.

- Also, disclosures will have to made in the foreign assets (FA) schedule in the ITR forms. Mohanka has come across cases, where out of ignorance, salaried employees who have obtained ESOPs from their employer’s parent company located abroad, have received notices for non-disclosure of such shares in FA schedule.

- This is the first year when full disclosure of cryptocurrency transactions is required. If you have crypto income to show for FY 2022-23, you will have to either use ITR-2 or ITR-3; ITR-1 and ITR-4 cannot be used. You will also have to disclose all the details in schedule VDA (virtual digital assets). This is also applicable to any gifts that you may have received in the form of crypto assets.

- If you choose to treat crypto gains as capital gain, you can use ITR-2. But if you choose to treat it as business income, then you will have to file returns using ITR-3, even if you have no other business income. You cannot set off crypto losses against any other capital gains made on, say, sale of stocks or mutual fund units.

- With the introduction of Annual Information Statement (AIS), it is not possible to miss reporting, let alone conceal, any income. Ensure that you go through AIS before filing returns. In case you spot any error, you can raise a grievance on the income tax e-filing portal.