ITR filing FY 2024-25: Top 8 mistakes first-time tax filers make; how to avoid them in AY 2025–26

Time of India

19 hours ago

ITR filing FY 2024-25: Filing an income tax return for the first time is an important financial milestone. While digital tools have made compliance more convenient, many first-time filers still fall into avoidable traps that can delay refunds, trigger unnecessary scrutiny, or create long-term tax complications.
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As we approach the AY 2025-26 tax return filing season, here are some common mistakes that new taxpayers tend to make and tips to avoid them.
Choosing the correct ITR Form
It is common for new filers to assume that ITR-1 applies to everyone with salary income. However, those with additional income sources like capital gains, house property, or freelance income may be required to use ITR-2 or ITR-3. Filing the incorrect form can result in the return being marked defective thereby requiring the need for filing a rectification.
First-time filers should thoroughly evaluate their complete income profile and utilize the income tax portal, relevant utilities, or seek professional advice to ensure they are using the correct form.
Reviewing Annual Information Statement (AIS)/ Tax Information Summary (TIS) and Form 26AS
Many new filers, particularly salaried individuals, rely solely on their Form 16 issued by their employer, neglecting the comprehensive details available in AIS/TIS and Form 26AS. These statements reflect income reported by employers, banks, mutual funds, and others along with TDS/TCS deductions.
Discrepancies between income and taxes reported in the tax return and those reflected in the statements can lead to mismatches, refund delays, or even notices from tax authorities.
Downloading and comparing these forms from the income-tax portal prior to tax filing can prevent such issues and ensure complete and accurate reporting.
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Not reporting all Incomes and losses
Taxpayers often mistakenly believe that only taxable income must be declared.
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However, exempt income like PPF interest, and even capital losses must be disclosed. Failure to report such exempt income or losses can create gaps in your financial records and prevent carrying forward losses to offset future gains. Therefore, it is crucial to maintain a comprehensive list of all the earnings, including the smallest amounts, and report them under the correct schedule.
Not Maintaining Proof for Deductions
Although additional controls are introduced in the tax return form like entering the document identification number for any claim of deduction, there is no requirement to upload any supporting documents along with income tax returns.
Even then, it is advisable to maintain all supporting documents, either digitally or physically for any future audit queries.
Wrong Classification of Income Head
Misclassifying income is another subtle but impactful error. For example, reporting freelancing income under the head 'Salary' or short-term capital gains reported under 'long term capital gains.' Such misreporting can lead to incorrect tax computation. Understanding the correct heads of income and ensuring appropriate classification is essential for filing an accurate tax return.
Reporting Foreign Shares
Indian employees working in MNCs often receive foreign shares as part of a Global ESOP Plan. Employees qualifying as residents must report foreign dividend income and capital gains upon selling of the foreign shares. Additionally, there is a requirement to report foreign shares in the Foreign Asset Schedule once the shares are vested. Also, if foreign tax is deducted on dividend income or on capital gains, employees can claim relief under the Double Taxation Avoidance Agreement.
Failing to report the income or not properly disclosing foreign assets can lead to penal consequences.
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Not Disclosing All Bank Accounts
First-time filers may declare only their salary bank account, missing out other savings or NRO accounts. While only one bank account needs to be pre-validated for refund, failure to disclose others may raise red flags. All your bank accounts (other than dormant accounts as prescribed by the Tax Department) such as savings, current, NRO account etc needs to be reported in the tax return.
Completing the filing process: The importance of e-verification
This is the simplest yet most overlooked step. Filing is only complete once the return is e-verified within 30 days. If not verified, the return is treated as invalid, as if the return was not filed at all. E-verification can be completed through Aadhaar OTP, net banking, or by sending the signed ITR-V by post.
Finally, filing your tax return before the due date is very crucial to avoid late fees. Also, it is important to update the contact details such as email, mobile number and address which will help to receive updates and communications from the tax department in a timely manner.
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Filing your tax return is more than just a legal obligation, it's your gateway into the financial system. Getting the basics right builds confidence and ensures a smooth, hassle-free tax experience. A little caution today ensures peace of mind—so file smart, file right, and stay stress-free.
(The author Shanmuga Prasad, is Director-Tax, EY India. Dilish Davis, Senior Tax Professional, EY India also contributed to the article)