Common Errors While Filing New ITR Forms For AY 2026-27

 Common Errors While Filing New ITR Forms for AY 2026-27

Every year, as the time to file tax returns approaches, many taxpayers are faced with the perennial anxiety about selecting the correct ITR form, including possible sources of income not accounted for, and the possibility of receiving a notice from the IT Department. These concerns are particularly pertinent for AY 2026-27 (assessment year 2026-27) as it is the last assessment year under the present Income-tax Act, 1961, and the ITR forms have been changed substantially in various respects such as new eligibilities, expanded formats for capital gains and additional disclosure requirements. As a result of such changes, an inadvertent mistake in selection of ITR form, income figures, or omitted schedules may be noticed in the form of a defective return notice, or delayed refunds, or additional late fee.

However, as can be seen, most of these errors are avoidable, with certain common errors being more frequent as compared to others, and hence are discussed below:

1. Incorrect ITR Form Selection

This remains the single largest error with taxpayers choosing the wrong ITR form, as the rules have changed substantially for AY 2026-27. For instance, ITR-1 now allows having two house properties, as compared to one previously, and also permits co-ownership, which has also newly been permitted for AY 2026-27, but does not allow incomes from capital gains from shares, foreign income sources, or directorships. A taxpayer with any of these incomes would be sending a defective return by selecting ITR-1.

How can you avoid it? It is critical to make a detailed list of sources of income, assets, and other relevant information held as on FY 2025-26 (financial year 2025-26), and cross-check it with eligibility criteria for each of the ITR forms.

2. Not Reconciling with AIS, 26AS and Form 16

The income-tax authorities have enhanced their scrutiny and cross-verification mechanisms, and hence it is not uncommon to receive a notice from the IT Department even on a seemingly routine return. One common example is reconciliation of income figures reported in the tax return with the Annual Information Statement (AIS) and Form 26AS. For instance, a taxpayer may erroneously report only salary income (as per Form 16) while neglecting to report interest income from a savings account, or dividends from mutual funds, both of which are captured in the AIS.

How can you avoid it? Download AIS and Form 26AS even before filing the tax return, and use the same as a cross-verification tool to ensure that all relevant income items (and tax deducted therefrom) have been captured in the tax return.

3. Incorrect Reporting of Capital Gains

The reporting of capital gains has become more nuanced this time around since the rates prescribed under the Finance Act, 2023, are being incorporated in ITR-2 and ITR-3 for the first time since their introduction in Budget 2023. As such, taxpayers who previously used to apply uniform rates (for long and short-term gains) for calculation of tax on capital gains may find themselves in trouble this time around since the revised rates for different asset classes (equity shares, mutual funds, property, etc.) are now being specified in the new ITR forms. Similarly, some taxpayers may also miss the mandatory disclosure now required in respect of share buybacks and certain other specific transaction, thereby inviting adverse action from the IT Department.

How can you avoid it? Do not rely on the calculations and schedules prepared for the previous assessment year. Instead, calculate your gains for each asset class separately, and cross-verify the same with the newly applicable rates for AY 2026-27.

4. Not Reporting Foreign Assets and Income

This is another area that often tends to be ignored by taxpayers, particularly if the foreign assets or income are of relatively small value. However, any taxpayer who holds foreign bank accounts, shares (including those held in an ESOP account in respect of employment abroad), or property abroad, is required to report the same in the Foreign Assets schedule of ITR-2 or ITR-3, as the case may be, since such disclosure is now mandatory irrespective of the value of such foreign assets or income. This is so even if the taxpayer has forgotten about the foreign bank account or shares held abroad.

How can you avoid it? If you have ever been employed abroad, or held foreign assets or income, it is best to always cross-verify whether such assets or income need to be disclosed in the tax return, rather than ignore the same due to apparent lack of significance, since the penalty on non-disclosure far outweighs any potential benefit therefrom.

 

5. Tax Regime Selection

It is now mandatory to mandatorily select the tax regime (new tax regime or old tax regime) under which the taxpayer wishes to compute their tax liability for FY 2025-26. In this regard, it is pertinent to note that the new tax regime is now the default regime, and hence taxpayers who wish to continue to enjoy benefits of various deductions available under the old tax regime (such as under Sections 80C and 80D of the Income-tax Act, 1961, or home loan interest deduction under Section 24 of the Income-tax Act, 1961) will need to explicitly claim the same, or even complete additional forms (such as Form 10-IEA) in this regard, where applicable.

How can you avoid it? Calculate your tax liability under both the tax regimes, and explicitly select the regime under which you wish to file your tax return instead of mechanically selecting the new tax regime as the default option.

6. Failure to Report Information About Tenants

In respect of tenants, the ITR-1 form, which allows filing of return of income for individuals with income from salary and one or two house properties (newly introduced for AY 2026-27), now requires the PAN, TAN, and/or Aadhaar number of the tenant, and thus, it is crucial for individuals with rental income to keep a track of the same even before filing the tax return.

How can you avoid it? If you have a tenant, it is always a good idea to keep a copy of their PAN or Aadhaar card on record.

Real-Life Example

Mrs. X, an employee, sold a few units of a mutual fund and also received a dividend from a foreign account. Mrs. X filed her tax return in ITR-1 form, since she had only salary income.

However, her tax return was rejected since ITR-1 did not allow capital gains and foreign income; she will now have to file an amended tax return and claim the benefit of carrying forward of loss, if any, on the capital gains, within the stipulated time period since the ITR-1 form filed by her has been rejected by the IT Department. As a result, Mrs. X would have unnecessarily incurred additional processing charges, as well as loss of benefit of carry-forward of loss, simply due to incorrect selection of the ITR form due to lack of awareness of the changes made for AY 2026-27.

Common Habits of Taxpayers Who Make Fewer Errors While Filing Returns

Prepare a comprehensive list of supporting documents, including Form 16, AIS, 26AS, capital gains, and foreign assets, if any.

Ensure that you select the correct ITR form before doing anything else.

Calculate your tax liability under both the tax regimes.

Verify all details with AIS/26AS before filing the tax return. Instead of relying on your own memory or last year’s return, use these documents as the true and final reference.

Finally, file the tax return at the earliest to avoid last-minute errors.

The Bottom Line

The above-discussed steps are designed to help you avoid the most common errors while filing tax returns for AY 2026-27. Although it may appear as if they require more time to file the tax return as compared to the previous year, these additional precautions are designed to help you save yourself from the hassle of responding to a notice from the IT Department in case of errors in the tax return.