Top 9 Common Myths About Income Tax and ITR Filing – Busted!

India’s income tax system can feel daunting, but myths and misconceptions often create more confusion than the laws themselves. Believing these can lead to missed deductions, compliance errors, or penalties. As a Chartered Accountant, I’ve debunked nine common myths about Income Tax and ITR filing to help salaried individuals, freelancers, and small business owners stay informed.

Myth 1: No ITR Needed If Income Is Below ₹7 or ₹12 Lakh

Truth: Under the new tax regime, a rebate under Section 87A exempts tax for total income up to ₹7 or ₹12 lakh. However, filing an ITR is still mandatory if:

• Your gross income (before deductions) exceeds the basic exemption limit.
• You meet specific criteria, such as:
  • Depositing over ₹1 crore in bank accounts.
  • Spending over ₹2 lakh on foreign travel.
  • Paying electricity bills exceeding ₹1 lakh annually (Rule 12AB, 7th Proviso to Section 139(1)).

Filing ensures compliance and eligibility for refunds or carry-forward benefits.

Myth 2: Filing ITR Completes the Process

Truth: Filing is only half the task. You must verify your ITR within 30 days via:

• Aadhaar OTP.
• Net banking.
• Sending a signed ITR-V to CPC, Bengaluru.

Failure to verify renders the return invalid (Section 139(8)).

Myth 3: Form 16 Is Mandatory for ITR Filing

Truth: While Form 16 simplifies filing for salaried individuals, it’s not mandatory. You can file your ITR using:

• Salary slips.
• Form 26AS (TDS details).
• Annual Information Statement (AIS).

This is especially relevant for freelancers, retirees, or self-employed individuals.

Myth 4: TDS Deduction Covers All Tax Liability

Truth: TDS is only a partial payment toward your tax liability. If your total tax exceeds the TDS deducted, you must pay the balance as Self-Assessment Tax (Section 140A) before filing your ITR to avoid interest or penalties.

And cherry on the top : If your TDS is deducted more than actual tax payable you can claim the refund.

Myth 5: Savings and FD Interest Are Tax-Free

Truth: Interest income is taxable:

• Fixed Deposit (FD) interest is fully taxable under “Income from Other Sources.”
• Savings account interest is exempt up to ₹10,000 under Section 80TTA (old regime, for non-senior citizens) or ₹50,000 under Section 80TTB (old regime, for senior citizens).
• In the new tax regime, all interest is fully taxable.

Always report interest in your ITR to avoid AIS/26AS mismatches.

Myth 6: Revising ITR Invites Trouble

Truth: Revising your ITR under Section 139(5) is a legal and safe way to correct errors. You can file a revised return until December 31 of the Assessment Year or before assessment completion, whichever is earlier. Fixing genuine mistakes avoids scrutiny, not attracts it.

Myth 7: Unreported Income Goes Unnoticed

Truth: The Income Tax Department tracks income through:

• Banks and financial institutions.
• Mutual funds and stock brokers.
• AIS and Form 26AS.

Mismatches between reported income and these records can trigger tax notices or scrutiny assessments.

Myth 8: Agricultural Income Needs No Reporting

Truth: Agricultural income is exempt under Section 10(1), but you must:

• Report it in your ITR if total income exceeds the basic exemption limit.
• Include it for tax rate calculations if agricultural income exceeds ₹5,000 (partial integration method).

Non-disclosure can lead to incorrect tax computations.

This is one of the biggest misconception. Will make a separate article on this soon.

Myth 9: ITR Can Be Filed Anytime During the Year

Truth: The due date for most individuals is July 31 of the Assessment Year (unless extended). Late filing incurs:

• A penalty of up to ₹5,000 (₹1,000 if income is below ₹5 lakh) under Section 234F.
• Interest on unpaid taxes under Sections 234A/B/C.
• Loss of ability to carry forward certain losses.

Timely filing ensures compliance and maximizes benefits.

Conclusion: Stay Informed, Stay Compliant

The Income Tax Act is rooted in clear rules, not assumptions. By debunking these myths, you can avoid stress, penalties, and missed opportunities for tax savings. 

Stay Happy & Wealthy!!