ITR Filing 2025: Check For These 8 Blunders To Avoid Scrutiny, Penalty By Income Tax Department

1. Mismatch Between Your TDS and Declared Income

A frequent red flag is when the Tax Deducted at Source (TDS) mentioned in your Form 26AS or Annual Information Statement (AIS) doesn't match the income declared in your ITR. The tax department cross-verifies these documents, and any discrepancy, whether from salary or freelancing, can lead to a notice.

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2. False or Inflated Tax Deduction Claims

Claiming excessive deductions under sections like 80C, 80D or House Rent Allowance (HRA) without proper documentation can lead to heavy penalties. The penalty for underreporting income is 50 per cent, while misreporting with fake documents can lead to a penalty of 200 per cent under Section 270A.

3. Unreported High-Value Transactions

The Income Tax Department carefully tracks high-value transactions. If a taxpayer fails to report such significant financial activities, their return can be flagged. Examples include cash deposits of over Rs 10 Lakh, credit card payments exceeding Rs 2 Lakh, or equity investments above Rs 1 Lakh.

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4. Not Reporting All Income Sources

Failing to mention all your earned income sources in your ITR is a serious mistake. This includes income from bank interest, rentals, capital gains (stocks, mutual funds, or property), crypto profits and overseas investments. Even incomes that are tax-exempt must be disclosed to avoid future inquiries.

5. Sudden Drop in Income

A sudden drop or a significant rise in income compared to previous years can raise eyebrows. Taxpayers must provide a valid reason and supporting documents to explain such changes. This can include revised salary slips or a job loss letter to justify a decline in income.

6. Incorrect Disclosure After a Job Switch

If you've switched jobs during the financial year, failing to correctly merge your Form 16 details from all your employers can lead to errors. This can result in your income being underreported, especially if deductions are claimed by both employers without proper verification. When a person switches jobs, the new employer calculates taxes only on the salary they provide, not on the total salary earned for the year. This can make it seem like you earned less than you did, leading to a tax shortfall. Both your old and new employers may also give you the same tax breaks and deductions for the year, which isn't allowed and can result in an incorrect tax calculation.

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7. Filing the Incorrect ITR Form

Using the wrong ITR form, whether intentionally or unintentionally, can lead to incomplete or misreported income. Each ITR form is specific to different sources of income and taxpayer categories. For instance, if you've earned income from capital gains but use ITR-1 (which is for simple salaried income), this can lead to an invalid return filing.

8. Fake Entries or Forgery

Under Section 271AAD, making false entries or hiding bank accounts and financial records is a punishable crime. During scrutiny, if the tax panel detects such inconsistencies or fake entries, they can impose strict penalties, including a penalty equal to the amount of the false entry, in addition to the tax and interest due.