Every filing season, the same errors appear across hundreds of income tax returns, not because taxpayers are being careless, but because certain aspects of the ITR are genuinely easy to get wrong, especially when filing is done in a hurry or without cross-checking underlying records. Some mistakes lead to a demand notice. Some lead to a mismatch with the department’s data. And some, particularly around foreign assets, can attract penalties under laws far stricter than the Income Tax Act itself. This article covers the most common real-world mistakes observed during ITR filing for FY 2025-26, along with what the correct approach should be.
Mistake 1: Incorrect Residential Status, Especially by NRIs
Residential status is the foundation of the entire tax return. It determines which income is taxable in India, which forms can be used, and what schedules must be filled. Yet this is one of the most frequently misreported fields in the return.
An individual is a Resident and Ordinarily Resident, a Resident but Not Ordinarily Resident, or a Non-Resident, depending on the number of days spent in India during the financial year and in the preceding years. The rules are specific and the counting of days matters enormously. Many NRIs who return to India for extended periods during a particular year without tracking their day count end up filing as non-residents when they have actually crossed the threshold to become residents or not ordinarily residents for that year.
The consequences of getting this wrong go beyond a technical error. A non-resident is taxed only on income earned or received in India. A resident is taxed on global income. If an NRI incorrectly files as a non-resident while they have technically become a resident for that year, their foreign income goes unreported, which can trigger notices later when the department’s international data-sharing systems surface that income. The correct approach is to count the days spent in India carefully and determine the correct residential status before selecting it in the ITR.
Mistake 2: Reporting Only One Bank Account and Skipping the Rest
Many taxpayers assume that entering their primary salary account or the account where the refund should be credited is sufficient. The ITR requires disclosure of all bank accounts held in India during the financial year, not just the one being used for the refund.
The department uses this information to cross-verify interest income and high-value transactions. If a taxpayer holds four bank accounts but discloses only one, the interest income from the other three accounts may go unreported, which the department can see through AIS.
The correct approach is to list all bank accounts, including joint accounts, and accounts held in cooperative banks, and to declare the interest earned from each.
Mistake 3: Not Tallying Interest Income Against Bank Certificates
This mistake is subtler than simply forgetting a bank account. Even when a taxpayer knows they have FD interest to declare, they often use the figure that pre-fills from AIS without verifying it against the actual interest certificate issued by the bank.
AIS sometimes shows higher interest than what was actually earned, particularly where: FD interest is shown at both the accrual stage and the maturity stage, effectively doubling the figure; joint FD interest may alsoshow under both account holders’ PAN numbers; or savings account interest is aggregated incorrectly across branches. On the other side, AIS sometimes shows lower interest where a bank has delayed filing its SFT return. Either way, the AIS figure and the actual interest certificate issued by the bank may not match, and filing based on an unverified AIS figure creates a problem in either direction.
The correct approach is to collect the actual interest certificates or passbook entries from all banks, calculate the actual interest earned, and reconcile this against what AIS shows. Where there is a discrepancy, feedback should be raised in AIS to flag the incorrect entry before the return is filed.
Mistake 4: Relying on Portal Capital Gains Data Without Verification
This is one of the most significant practical errors in the current filing season, and it affects a large number of investors who trade in equity shares or mutual funds.
The pre-filled capital gains data on the income tax portal is sourced from depositories and mutual fund registrars. In many cases this data is duplicated, misclassified, or incorrect. Common problems include: effectively creating a double-entry; gains being shown under both a joint holder’s PAN and the primary holder’s PAN; transactions being classified as long-term when the actual holding period was short-term or vice versa; and scrip-level purchase prices being shown incorrectly, especially for shares acquired through ESOPs, rights issues, or bonus allotments where the cost basis is not straightforward.
Using the portal’s pre-filled capital gains data directly without verifying it against the broker’s tax profit and loss report and the consolidated account statement from CAMS or KFintech can result in either overstated or understated capital gains in the return. For equity shares, the Schedule 112A reporting requires scrip-level entries, and each one needs to be verified individually. The correct approach is to always use the official capital gains statement from the broker and mutual fund registrar as the primary source, and to treat the portal’s pre-filled data as a starting reference to be verified, not a finished figure to be accepted.
Mistake 5: Not Reporting Foreign Remittances Under LRS for Acquisition of Assets
Many resident individuals who remit money abroad under the Liberalised Remittance Scheme to purchase foreign equity shares, units in overseas mutual funds, immovable property abroad, or other foreign assets, do not realise that these assets must be disclosed in their Indian income tax return once acquired.
Schedule FA, which is present only in ITR-2 and ITR-3, requires a Resident and Ordinarily Resident individual to disclose all foreign assets held at any time during the relevant calendar year. This includes foreign bank accounts opened to hold remitted funds, foreign shares purchased through international brokerage platforms, and immovable property acquired abroad. The reporting period for Schedule FA is the calendar year ending 31st December, not the Indian financial year, so assets acquired or held at any point between 1st January 2025 and 31st December 2025 must be disclosed in the return for AY 2026-27.
The consequences of non-disclosure are severe. Under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, failure to report foreign assets can attract a flat penalty, regardless of the value of the asset or whether any income was earned from it. Lack of awareness is not accepted as a defence once a notice is issued. The correct approach is to maintain a record of all LRS remittances and the assets acquired through them, and to ensure these are disclosed in Schedule FA of ITR-2 or ITR-3 every year as long as the assets are held.
Mistake 6: Incorrect or Incomplete Debtor and Creditor Figures Under Presumptive Taxation
Taxpayers filing under the presumptive taxation scheme in ITR-4, whether under Section 44AD or Section 44ADA, are required to fill in financial particulars including the amount of sundry debtors, sundry creditors, stock in trade, and cash balance as at the end of the year. Many taxpayers either skip these fields entirely or fill in estimated, rounded figures without matching them against their actual books or records.
This is a mistake for two reasons. First, the figures entered are visible to the department and are compared across years. A significant jump in debtors without a corresponding increase in declared turnover, or a large creditor balance without matching purchases, can be a trigger for scrutiny. Second, entering inaccurate figures in the return is a filing error that can come back when an assessment is opened, since the taxpayer has formally declared figures that do not match their own books.
The correct approach is to prepare at least a basic balance sheet at year end showing actual debtor and creditor balances, cash on hand, and stock, and to use these actual figures when filling the financial particulars section of ITR-4, even though the presumptive scheme does not require books of account.
Mistake 7: Incorrect or Estimated Figures in the Assets and Liabilities Schedule
For taxpayers whose total income exceeds Rs 1crore in the financial year, the ITR requires disclosure of assets and liabilities in a dedicated Schedule AL. This schedule asks for the value of immovable property, jewellery and movable assets, vehicles, financial assets including shares and mutual funds, bank balances, and outstanding loans as at the end of the financial year.
Many taxpayers fill this schedule with estimated or approximate figures rather than actual values. A property is listed at a round figure without checking the registered purchase deed. Jewellery is shown as a ballpark estimate rather than matching it against purchase bills. Loans are understated or overstated because the actual closing balance has not been checked against the lender’s statement.
The department uses Schedule AL data to build a picture of a taxpayer’s net worth over successive years. Inconsistencies between years, such as a property that appears in one year but not the next, or a sharp unexplained increase in financial assets, can invite queries. More seriously, an understatement of assets in Schedule AL when those assets are visible to the department through property registrar data, demat account statements, or bank records is a mismatch that can be flagged during assessment.
The correct approach is to treat Schedule AL with the same care as the income schedules in the return. Use actual figures from property documents, jeweller invoices, account statements, and loan closure certificates rather than estimates.
A Common Thread Across All These Mistakes
What connects all the mistakes above is a simple and understandable tendency to rely on whatever is most convenient, the portal’s pre-filled data, last year’s figures, or a quick estimate, rather than taking the time to verify each figure against the actual underlying record. The income tax department’s systems are now cross-referencing return data against a very wide range of third-party sources, and mismatches that would have gone unnoticed ten years ago are now flagged automatically. The correct filing approach has changed from one where the taxpayer controlled the information flow to one where the department already has most of the data and is essentially checking the taxpayer’s return against it.
Frequently Asked Questions
1. How do I determine my correct residential status for FY 2025-26? Count the number of days spent in India during the financial year from 1st April 2025 to 31st March 2026. NRIs who spent extended time in India during the year should check this carefully before selecting their residential status.
2. Which bank accounts must be disclosed in the ITR? All bank accounts held in India during the financial year must be disclosed, including, joint accounts, and accounts in cooperative banks. Only closed accounts that were shut before the beginning of the financial year need not be disclosed.
3. What should I do if the AIS shows higher FD interest than my actual interest certificate? Raise feedback within the AIS system flagging the entry as incorrect, and provide the actual figure supported by the bank’s interest certificate. File the return with the correct actual figure rather than the inflated AIS figure.
4. Do I need to report foreign shares bought through an international app under LRS? Yes. Resident and Ordinarily Resident individuals must disclose all foreign assets in Schedule FA of ITR-2 or ITR-3, including foreign equity shares acquired through LRS remittances, regardless of the amount. Non-disclosure attracts a penalty under the Black Money Act.
5. What figures should be entered in the financial particulars section of ITR-4? Actual figures from your records should be used for sundry debtors, sundry creditors, cash balance, and stock in trade. Estimated or rounded figures should be avoided since they may create inconsistencies that attract scrutiny.
6. At what income level does Schedule AL become mandatory? Schedule AL is mandatory for all taxpayers whose total income exceeds Rs.1 crore in the relevant financial year. The schedule requires disclosure of assets and liabilities as at 31st March of the financial year at actual values, not estimates.
