Common Mistakes People Make While Filing Income Tax Returns: A Complete Guide for Indian Taxpayers

by KarNivesh | 29 September, 2025

Filing Income Tax Returns (ITR) is not just a legal responsibility but also an important step in maintaining financial discipline. Yet, many taxpayers in India end up making avoidable mistakes that lead to penalties, delayed refunds, or even scrutiny from the Income Tax Department. With the government tightening compliance norms and deploying advanced data-matching tools, the margin for error has become very slim. Understanding the common mistakes and learning how to avoid them can make the filing process smooth and stress-free.

One of the most significant aspects to note is that penalties for errors are no longer lenient. Under Section 270A of the Income Tax Act, under-reporting of income can attract penalties up to 50% of the tax due, while misreporting can go as high as 200%. For example, a taxpayer with an annual income of ₹20,00,000 who fails to report ₹4,00,000 could face a penalty of ₹60,000 for under-reporting or ₹2,40,000 for misreporting. Similarly, failing to disclose foreign assets with an aggregate value above ₹20 lakhs can attract penalties of up to ₹10,00,000. Clearly, mistakes in ITR filing can come at a hefty price.

Common Income Tax Filing Mistakes and Their Penalties in India

Missing the Filing Deadline

One of the most frequent and damaging errors is missing the ITR deadline. For the Financial Year 2024–25 (Assessment Year 2025–26), the original filing deadline of July 31, 2025, was extended to September 15, 2025. Filing beyond this date results in automatic penalties under Section 234F. For taxpayers with income above ₹5,00,000, the penalty is ₹5,000, and for those with income up to ₹5,00,000, the penalty is ₹1,000. Even if you have no tax liability, these penalties apply. Missing the belated filing deadline of December 31, 2025, means you lose the opportunity to file your return entirely, which could also affect your ability to carry forward losses or claim refunds.

ITR Filing Timeline and Deadlines for FY 2024-25 (AY 2025-26)

Interest on Late Payments

Apart from late filing fees, interest is levied on delayed tax payments under Section 234A at 1% per month. For those required to pay advance tax exceeding ₹10,000, additional interest under Sections 234B and 234C also applies. For instance, if you owe ₹1,00,000 in taxes and delay payment by three months, you could end up paying an additional ₹3,000 just as interest.

Choosing the Wrong ITR Form

Another frequent error is selecting the incorrect ITR form. Each form is designed for a specific category of taxpayer. ITR-1 is meant for salaried individuals with income up to ₹50 lakhs from salary, pension, or one house property. ITR-2 is for those with capital gains, multiple properties, or foreign income. Business owners and professionals need to use ITR-3, while those opting for presumptive taxation under Sections 44AD/44ADA/44AE should use ITR-4. Filing the wrong form results in your return being treated as “defective” under Section 139(9). If you do not correct it within 15 days of receiving notice, your return is deemed never filed, exposing you to late penalties and denial of benefits.

PAN-Aadhaar Linking Issues

Failure to link your PAN with Aadhaar can make your ITR invalid. The government has made Aadhaar-PAN linking mandatory, and failure to comply can result in processing delays, rejection of your return, and even penalties of up to ₹10,000 under Section 271H.

Incomplete Income Declaration

Many taxpayers overlook reporting all sources of income, believing small amounts may not matter. However, the Income Tax Department now has comprehensive visibility through Form 26AS, the Annual Information Statement (AIS), and the Taxpayer Information Summary (TIS). Interest earned on savings accounts, fixed deposits, rental income, consultation or freelancing income, and capital gains from mutual funds or shares must all be reported. With digital transactions and global income reporting becoming more transparent, even small omissions can result in penalties ranging from 50% to 200% of the tax due.

Errors in Deductions and Exemptions

Mistakes in claiming deductions are also widespread. For instance, House Rent Allowance (HRA) claims are often rejected due to fake rent receipts, missing landlord PAN details for rents above ₹1,00,000 annually, or mismatches between employer-declared HRA and ITR claims. Claiming HRA while residing in your own house is also disallowed. Similarly, taxpayers sometimes claim deductions under Section 80C without valid proof of investment or submit fabricated health insurance or donation receipts. The new rules impose strict penalties, ranging from ₹5,000 for under-reporting to 200% of the tax evaded for misreporting.

Banking and E-Verification Mistakes

Providing incorrect bank account details—such as wrong IFSC codes or unvalidated accounts—can delay or block refunds. Using joint accounts without proper authorization is another common issue. Moreover, filing your return is not the last step. E-verification within 30 days of filing is mandatory, failing which your return is considered invalid. Technical errors, Aadhaar OTP failures, or unlinked mobile numbers often cause verification delays, so these must be checked in advance.

Foreign Assets and Capital Gains Reporting

Residents with foreign income or assets must disclose them, even if they do not generate income. Under the Black Money Act, nondisclosure of foreign assets above ₹20 lakhs can lead to penalties of ₹10,00,000. Similarly, capital gains reporting requires accuracy. Errors in calculating indexation benefits for real estate, tracking mutual fund redemption dates, or reporting cryptocurrency trades can all trigger scrutiny.

Portal-Related Errors

While the ITR portal pre-fills much of the data, blindly relying on it can be risky. Duplicate entries, outdated information, and missing transactions are common. Validation errors may also occur if income totals do not match, TDS does not reconcile with Form 26AS, or there are mismatches between Aadhaar, PAN, and bank records. Careful review is essential before submission.

Best Practices to Avoid Mistakes

Taxpayers can prevent most of these mistakes by keeping thorough documentation, including salary slips, Form 16, bank statements, investment proofs, and rent receipts. Filing early gives you time to spot errors and revise if needed. Consulting a tax professional is advisable in cases involving multiple income sources, foreign assets, or complex capital gains.

Conclusion

The process of filing income tax returns in India has become increasingly digitized, transparent, and stringent. While this ensures fairness in the system, it also means that mistakes can prove costly, both financially and in terms of compliance reputation. Avoiding errors is not just about saving penalties; it also helps build a credible financial record useful for securing loans, visas, and business opportunities. By being proactive, maintaining records, and filing accurately and on time, taxpayers can ensure smooth compliance and peace of mind.