Avoid Common Mistakes When Filing Tax Return
Tax Return Filing can be tricky sometimes given many factors like if the taxpayers has multiple sources of income and also has geographical source of income or a resident resided out of country for more than 183 days etc. This article focuses on how to Avoid Common Mistakes When Filing Tax Return so that the taxpayers should not face unnecessary notices from FBR or litigation.
Avoid Common Mistakes When Filing Tax Return
The government of Pakistan offers several benefits to persons filing income tax returns. However, some people file incomplete, wrong, or false declarations with the Federal Board of Revenue (FBR) in order to avail these benefits. This can lead to strict audit proceedings, penalty, or assessments from the FBR.
Benefits of Becoming a filer/ the need to become tax filer
Sometimes people just want to become filer for one transaction so that they can take benefit by becoming filer, these one time transactions can be:
- Sale and purchase of property
- Purchase of Vehicle/ Car
- Lease of Vehicle/ Car
- Cash withdrawal
- Profit on bank accounts/ NSCs
Here are our quick comments on common mistakes to avoid when filing income tax returns with the FBR:
Check FBR Maloomat Portal Before Filing Tax Return
The FBR Maloomat Portal makes sure that we didn’t skip any information while filing of tax return, in case we file submit incomplete or wrong information then FBR can initiate proceedings against you by sending you notice/s that might end in penalties and additional tax u/s 205.
Do not file incomplete returns
The FBR has access to information about your income, assets, and expenses from various sources. If you do not file a complete return, the FBR may initiate legal proceedings against you.
Declare all Incomes Sources
This includes income from business, rental, salary, sale of property, dividends, prize bonds, savings accounts, fixed assets, and gain on sale of precious items.
Filing of Complete Wealth Statement
This includes a list of all assets that you acquired or held in a tax year, such as bank accounts, saving certificates, prize bonds, vehicles, share capital in a business, etc.
Declare Actual Expenses
This includes rent, car maintenance, traveling, education, household expenses, and other expenses that you incurred during the tax year.
File your income tax return on time/ Late submission of Income Tax Returns
If you file your return after the due date, you may be subject to a penalty.
Do not wrongfully claim tax credits or tax deductions
It is important to speak with a tax expert to determine if you are entitled to any tax credits or deductions.
Don’t forget to file tax returns in later years
As per law every taxpayer who has obtained National Tax Number is required to file tax return/s whether he has taxable income or not.
Selecting the wrong Tax Return Form
It is imperative that you select and fill the Income Tax Return form applicable to you or your income source. For example, if you are a salaried individual opt for Salary Return for Individuals – Classic View.
Revise your return to correct any errors or discrepancies
You have 60 days from the date you file your return to revise it.
If you are concerned about receiving income tax notices from the FBR, you should contact a tax expert. They can help you ensure that your returns are filed correctly and avoid any potential penalties.
Contact us for help with your income tax returns.
We offer a 100% worry-free income tax return filing service to our clients.
Here are some additional tips for avoiding common mistakes when filing income tax returns in Pakistan:
- Use the FBR’s Maloomat Portal to check your income, asset, and expense information before you file your return
- Keep accurate records of your income and expenses throughout the year
- Use a tax expert to help you file your return if you are not sure how to do it correctly
- File your return on time and pay any taxes that you owe
Here are common mistakes that a taxpayer needs to avoid:
Check FBR Maloomat Portal Before Filing Tax Return
While filing your tax return you have to gather information relating to your income, assets and expenses for the tax year for which you need to file tax return. Sometimes we skip information vital for filing of income tax return, so apart from gathering our own data we must also consult FBR Maloomat Portal so that we can cross-check our data with FBR record as FBR records our tax dealings on daily basis.
The FBR Maloomat Portal makes sure that we didn’t skip any information while filing of tax return, in case we file submit incomplete or wrong information then FBR can initiate proceedings against you by sending you notice/s that might end in penalties and additional tax u/s 205.
We always recommend that FBR Maloomat Portal must be checked to avoid submitting incomplete or wrong tax returns.
Filing of NIL Income Tax Returns
In order to become active filer, some taxpayers fil NIL income tax return with no data in them. Which is a gross mistake and may lead to adverse outcomes in the shape of notice/s from FBR and litigation.
Declare all Incomes Sources
Every person declaring his income must ensure to add details of all incomes in their income tax return. Some of the incomes under the law include as follow:
- Business income
- Rental income/ Property Income (Rent)
- Salary income
- Profit on sale of property
- Dividends
- Prize bonds
- Profit on saving accounts
- Fixed assets
- Gain on sale of precious items
- Income from Investments
- Capital Gains
Sometimes while filing tax returns we forget to declare certain income heads other than our main source of income. For example, if we a salaried person is to file tax return then he must account for other income/s as mentioned above.
Non-Disclosure of Foreign Income and Assets
It is mandatory for resident taxpayers to disclose and declare their foreign income and assets if certain conditions are met, so correct details of their foreign assets and income outside Pakistan must be declared in their income tax returns.
Conditions to declare foreign income and assets are:
Foreign Income Not Less than $10,000
Every resident taxpayer being an individual having foreign income of not less than ten thousand United States dollars.
OR
Foreign assets not less $100,000
Having foreign assets with a value of not less than one hundred thousand United States dollars.
116A. Foreign income and assets statement.– (1) Every resident taxpayer being an individual having foreign income of not less than ten thousand United States dollars or having foreign assets with a value of not less than one hundred thousand United States dollars shall furnish a statement, hereinafter referred to as the foreign income and assets statement, in the prescribed form and verified in the prescribed manner giving particulars of:
(a) the person’s total foreign assets and liabilities as on the last day of the tax year;
(b) any foreign assets transferred by the person to any other person during the tax year and the consideration for the said transfer; and
(c) complete particulars of foreign income, the expenditure derived during the tax year and the expenditure wholly and necessarily for the purposes of deriving the said income.(2) The Commissioner may by a notice in writing require any person being an individual who, in the opinion of the Commissioner on the basis of reasons to be recorded in writing, was required to furnish a foreign income and assets statement under sub-section (1) but who has failed to do so to furnish the foreign income and assets statement on the date specified in the notice.
Filing of Complete Wealth Statement
As per law every taxpayer (exceptions) is required to file wealth statement along with income tax return under section 114 of the Income Tax Ordinance, 2001. A taxpayer also needs to declare details of assets in his name and benami assets that he purchased in name of his siblings or other family members these benami assets may include property, bank accounts, investments, saving certificates, prize bonds, cars/ vehicles or any other assets.
Declare Actual Expenses
Always remember to file accurate detail of personal expenses as well as business expenses because personal and business expenses must be reported separately.
Late submission of Income Tax Returns
Another common mistake made by taxpayers is late filing of tax returns which happens when taxpayers are unaware of tax return filing deadlines and in most of the cases FBR issues notice to taxpayers to file tax return as the same was not filed within the due date.
Any taxpayer filing income tax return after the deadline can be fined with a minimum penalty of Rs.20,000/- and the penalty amount increases based of type of taxpayer and income source/ liability.
We recommend you to keep track of tax return filing deadlines to avoid penalties.
Filing tax returns in Later years
Sometimes people just want to become filer for one transaction so that they can take benefit by becoming filer, these one time transactions can be:
- Sale and purchase of property
- Purchase of Vehicle/ Car
- Lease of Vehicle/ Car
- Cash withdrawal
- Profit on bank accounts/ NSCs
These one-timer taxpayers stop filing tax returns after the one time transaction as they don’t want to file tax returns which leads to notices from FBR and ends up in heavy penalties which leads to attachment of properties/ bank accounts to recover the penalty amount from the taxpayer.
As per law every taxpayer who has obtained National Tax Number is required to file tax return/s whether he has taxable income or not.
Who is not required to file Tax Return
The following persons are not required to file tax return: –
- A widow
- An orphan below the age of twenty-five years;
- A disabled person
- In the case of ownership of immovable property, a non-resident person
Wrongfully Claiming Tax Credits
There are certain tax credits allowed to certain persons under the law. However, in several cases, taxpayers wrongfully claim tax credit. It is best to take legal advice from a tax expert to know whether you are entitled to any tax credit or tax deduction under the law to avoid facing any income tax notices from FBR.
Wrongfully Claiming Tax Deductions
There are certain tax deductions allowed to certain persons under the law. However, in several cases, taxpayers wrongfully claim tax deductions. It is best to take legal advice from a tax expert to know whether you are entitled to any tax credit or tax deduction under the law to avoid facing any income tax notices from FBR.
Selecting the wrong Tax Return Form
It is imperative that you select and fill the Income Tax Return form applicable to you or your income source. For example, if you are a salaried individual opt for Salary Return for Individuals – Classic View.
Following is the list of available Income Tax Return Forms at https://iris.fbr.gov.pk/public/txplogin.xhtml
Returns & Statements (Original-Simplified)
- Normal Return (Excluding Business) – Wizard View
- Salary Return for Individuals – Wizard View
- Salary Return for Individuals – Wizard View
- Normal Return (Excluding Business) – Wizard View
- Salary Return for Individuals – Wizard View
- Normal Return (Excluding Business) – Wizard View
Returns / Statements (Original)
- Salary Return for Individuals – Classic View
- Normal Return (Ind/AOP/COY)
- Simplified Return for Manufacturers – Classic View
- Simplified Return for Traders – Classic View
- Statement of Final Taxation
- Incomplete / transitional year
- 116(2) (Wealth Statement)
- Non-resident Pakistan-origin person having no Pakistan-source income
- 116A(1) (Foreign Income & Assets Statement for Resident Individuals)
- Capital Value Tax – Statement of Foreign Assets
- Non-resident ship owner / charterer
- Non-resident aircraft owner / charterer
- Simplified Return for SMEs having turnover up to 250 Million
Returns / Statements (Revised)
- Normal Return (Ind/AOP/COY)
- Incomplete / transitional year
- Salary more than 50% and other sources
- Simplified Return for Manufacturers – Classic View
- Simplified Return for Traders – Classic View
- Statement of Final Taxation
- 116(3) (Wealth Statement)
Extension Applications
- For filing of Return
- For filing of Statement of Final Taxation
- For filing of Wealth Statement
- For filing of Return further extension
Revision Applications
Revise Your Return To Remove Errors, mistakes and Discrepancies
The normal time allowed to revise your return is 60 days from the day on which the return has been filed with FBR. Taxpayers must thoroughly review the return filed with FBR and instantly revise their income tax return as soon as they discover any mistake, error or discrepancy to rectify the mistake.
If you are worried about receiving income tax notices from FBR, all you need to do is to contact the best tax consultant in Lahore. We offer a 100% worry-free income tax return filing service to our clients.
By following these tips, you can help ensure that you avoid common mistakes when filing income tax returns in Pakistan.
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