The due date for filing tax returns for taxpayers is 31st July of the year of assessment. Postponing it until the last minute and filing tax returns in a hurry can result in the taxpayer disclosing wrong information, which may negatively affect the return filing outcome.
Any individual looking to file long-term capital gains tax can do so either online or manually. This article will discuss the common mistakes that an individual can make while filing long term capital gain taxation and how to avoid them.
Top 8 Mistakes To Avoid When Filing Long-Term Capital Gains Tax
After you provide details of tax-saving investments and reductions, you must proceed toward filing the long term capital gain taxation. Regardless of whether you file returns manually or online, mentioned below are some of the most common tax filing mistakes that you must be aware of and avoid:
1 Not Selecting the Correct Form
Choosing the right ITR form to file returns is very important. Make sure to select ITR-2 to report capital gains so that the income tax department can proceed with your return. Selecting the ITR form depends on the nature of your income or the category to which the individual belongs. For instance, if the taxpayer has proceeded with a wrong return form, he might receive a defect notice from the income tax department, which should be corrected within the provided time limit.
However, if you are filling out your long term capital gain taxation online, you need not worry much about proceeding with the wrong form, as the tax software can guide users.
2 Wrong Classification Of Gains
Make sure that you do not incorrectly categorize the gains as long-term or short-term because of unclear knowledge of holding periods. It is crucial to classify the correct gains to avoid any hassle in filing long term capital gain taxation.
3 Providing Incorrect Personal Information and Documents
Personal details, such as your address, name, phone number, mail ID, date of birth, PAN, and more, should be mentioned correctly in your income tax return form. You must ensure that all your details align with the ones mentioned in your PAN. In addition, when filing LTCG tax, make sure to be prepared with the crucial documents, including
- The sale deed of the property
- Indexation calculation sheet (for LTCG tax)
- Purchase deed and payment proof
- Expense receipts for improvements and sale-related costs
4 Not Presenting Your Multiple Income Sources
If you have more than one long-term capital gain, make sure to disclose it. Taxpayers need to disclose all their income sources, along with fixed deposit interest, savings account interest, income from short-term capital gains, and rental income from houses, property, and others. You must disclose your income, regardless of being exempt or taxable. Several taxpayers fail to provide information on exempt income out of ignorance. Undisclosed income can lead to discrepancies and tax scrutiny.
5 Mentioning Incorrect Details Manually
The ITR form includes multiple columns and rows, which must be filled at the time of filing income tax returns. You need to mention the details in the ITR form in a specific format. By not following the mentioned format and filling in the details accurately, you may create errors in the returns.
6 Failing To Reconcile Income and Investments With TIS and AIS
Tax Information Summary (TIS) includes aggregated information and taxpayer details. The TIS includes the reported value, which is the value mentioned by multiple reporting entities, such as the banks concerning the assessee.
The Annual Information Statement (AIS) offers a more detailed financial overview, including transactions related to the sale and purchase of securities, GST turnover, foreign remittances, and other income sources. While Form 26AS was previously the primary tax statement, AIS now provides a broader dataset.
The derived value represents the upgraded value after acknowledging the taxpayer’s feedback. This value is prefilled in the ITR. Hence, it is important to ensure that the derived value is the actual value of the taxpayer’s investment and income.
7 Not Paying Advance Tax
You are always advised to pay your taxes within the due dates to avoid paying penalties and interest. You must pay the advanced taxes in four instalments. Short payment or non-payment of your advance taxes leads to 1% interest on the unpaid amount until any shortfall exists.
8 Ignoring Indexation
By not acknowledging the advantages of indexation for LTCG, you can end up producing your taxable income. Hence, make sure not to ignore indexation while filing your long term capital gain taxation.
Final Thoughts
You must file an ITR with utmost sincerity and seriousness. Several taxpayers end up making mistakes when filing LTGC tax, paying hefty penalties and fines, and facing criminal charges. To avoid any such complications, it is crucial to implement the rules put forward by the government of India and accurately complete your filing of long term capital gain taxation. Hence, make sure to complete the process timely along with all the crucial documents. In addition, be sure to double-check the information before you submit your ITR form to avoid making any mistakes that may end up costing you money and time and causing a lot of burden.