ITR AY2025 26: File your taxes right or face 200% penalty and jail, cautions CA

As the deadline for filing income tax returns (ITR) for Assessment Year 2025-26 approaches, taxpayers are being cautioned to exercise utmost care while preparing their returns. New tax regulations have brought stringent penalties for anyone caught misreporting income or claiming false deductions, reinforcing the government’s focus on promoting honest tax compliance.

“Ensuring your ITR is filed correctly is vital for safeguarding your financial peace of mind,” said CA Anupam Sharma. “Deliberate attempts to hide income or make false claims can invite severe consequences, including penalties up to 200% of the tax due, annual interest as high as 24%, and even prosecution under Section 276C of the Income Tax Act, 1961, which could lead to imprisonment for up to seven years along with a fine.”

The Income Tax Department has underscored that the responsibility for an accurate return ultimately lies with the taxpayer, irrespective of whether the return is prepared by a chartered accountant, tax consultant, or any other professional. “Even if your CA or consultant makes a mistake, you remain accountable in the eyes of the law,” Sharma noted. “The taxpayer is liable for any discrepancies, not the person who filed the return on their behalf.”

These stricter measures apply uniformly across all taxpayer categories, from salaried employees and professionals to freelancers and businesses. The objective is to ensure comprehensive and transparent disclosure of income from all sources. “There’s no exemption for anyone. The same rules govern salaried individuals, self-employed professionals, and businesses,” Sharma emphasised.

Common pitfalls in filing ITRs continue to trip up many taxpayers, often leading to penalties. Some of the frequent errors include:

Claiming deductions under Section 80C without supporting documents. It’s essential to retain bills or receipts to validate such claims.

Switching tax regimes mid-year. Opting for the old regime to claim deductions and then shifting to the new regime can cause complications and inaccuracies.

Submitting fake House Rent Allowance (HRA) claims. Listing HRA deductions without a proper rent agreement or the landlord’s PAN can trigger scrutiny.

Classifying personal expenses as business costs. Only legitimate business expenses are deductible; personal spending must be kept separate.

Failing to disclose additional income streams. Earnings from freelancing, cryptocurrency trading, or side gigs must be reported to avoid penalties for non-disclosure.

One critical reminder is that simply revising a return does not absolve a taxpayer of penalties if the original filing contained intentional misstatements. “If the department determines there was intent to mislead, filing a revised return won’t protect you,” Sharma warned.

To steer clear of trouble, Sharma advised taxpayers to ensure that all figures in their ITR align with their Annual Information Statement (AIS) and to keep thorough documentation to substantiate claims. Filing returns within stipulated deadlines is equally important to avoid late fees and further complications.

With multiple ITR forms tailored to different types of taxpayers—from ITR-1 for simpler income structures to ITR-7 for specific entities—it’s essential to select the correct form based on one’s income profile and legal status. “Choosing the wrong form can invalidate your return and invite penalties,” Sharma cautioned.

As tax season gathers pace, experts like Sharma urge individuals and businesses alike to prioritize accuracy and compliance, ensuring that filing their returns remains a smooth and penalty-free process.