10 Common ITR Filing Mistakes Salaried Employees Make — and How to Avoid Tax Notices (AY 2026-27)

You've gathered your Form 16, logged into the income tax portal, and filed your return. A few weeks later, you receive an intimation under Section 143(1) with a demand — or worse, a notice asking you to explain a discrepancy. For most salaried employees, this isn't the result of tax evasion. It's the result of a filing mistake that was entirely avoidable.

The Income Tax Department's systems have become remarkably good at cross-referencing data. Your AIS now captures mutual fund transactions, property purchases, high-value spending, and even UPI receipts above certain thresholds. A mismatch between what you report and what the department already knows is the single biggest trigger for automated notices.

Here are ten mistakes salaried employees make most often when filing their ITR — and exactly how to avoid each one.

1. Not Reporting Income from a Previous Employer After a Job Switch

This is arguably the most common reason salaried employees end up with a tax demand after filing. If you switched jobs during FY 2025-26, you received two (or more) Form 16s — one from each employer. Each employer computed TDS independently, likely applying the basic exemption limit and standard deduction separately for their portion of the year.

The result: each employer deducted TDS as if their salary was your only income. When you combine both salaries, you fall into a higher slab, and the total TDS deducted is less than your actual liability.

How to avoid it: Add salary income from all employers in your ITR. Use Part B of each Form 16 to get the gross salary, exemptions, and TDS figures. If the combined income pushes you into a higher bracket, you'll owe the difference — but paying it now avoids interest under Sections 234B and 234C. For a detailed walkthrough, see our guide on tax implications of switching jobs mid-year.

2. Claiming HRA Exemption Without Proper Documentation

HRA is one of the largest exemptions salaried employees claim, and it's also one of the most scrutinized. Common errors include claiming HRA while living in a property you own, not having rent receipts or a rental agreement, and failing to provide the landlord's PAN when annual rent exceeds Rs 1 lakh.

The department can verify your claim by matching it against your landlord's reported income. If your landlord didn't declare the rental income, or if the PAN you provided doesn't match, expect a query.

How to avoid it: Keep monthly rent receipts with revenue stamps, maintain a valid rental agreement, and collect your landlord's PAN if your annual rent exceeds Rs 1 lakh. Never claim both HRA exemption and the Section 80GG deduction — they're mutually exclusive. Read our HRA exemption calculation guide to ensure you're computing the correct exempt amount.

3. Not Reporting Savings Account and FD Interest

Many employees assume that if TDS has been deducted on their FD interest, they don't need to report it in their ITR. This is wrong. TDS is simply an advance payment of tax — the income itself must still appear in your return under "Income from Other Sources."

Similarly, savings account interest — even small amounts of Rs 500 or Rs 1,000 — is reportable income. You can claim a deduction of up to Rs 10,000 under Section 80TTA (or Rs 50,000 under 80TTB if you're a senior citizen), but only if you first report the interest as income.

How to avoid it: Check your bank statements or passbooks for interest credited during FY 2025-26. For FDs, download the TDS certificate (Form 16A) from your bank. Report all interest income and then claim the applicable deduction. If TDS was deducted, claim credit for it in the TDS schedule of your ITR.

4. Choosing the Wrong ITR Form

Filing ITR-1 (Sahaj) is the default for most salaried employees, but it has strict eligibility criteria. You cannot use ITR-1 if:

• Your total income exceeds Rs 50 lakh
• You have capital gains from selling stocks, mutual funds, or property
• You hold foreign assets or have foreign income (including US stocks via apps like Vested or INDMoney)
• You have income from more than one house property
• You are a director in a company

Filing the wrong form leads to a defective return notice under Section 139(9), requiring you to refile within 15 days.

How to avoid it: Before selecting ITR-1, review whether any of the above conditions apply. If you sold even a single equity mutual fund unit or share during the year, you need ITR-2. Check our guide on which ITR form to file to be certain.

5. Not Reconciling Your AIS Before Filing

The Annual Information Statement (AIS) is the department's comprehensive record of your financial transactions. It includes salary, interest, dividends, mutual fund purchases and sales, property transactions, significant cash deposits, and more. If any item in your AIS doesn't match your ITR, the system flags it automatically.

Common mismatches include: mutual fund capital gains you forgot to report, dividend income from shares held in demat, interest from a savings account you rarely use, or TDS deducted by a client on freelance work.

How to avoid it: Before filing, log into the income tax portal and review your AIS and TIS (Taxpayer Information Summary). If any entry is incorrect (for example, a transaction attributed to you by mistake), submit feedback on the AIS portal to flag it. Then ensure every legitimate transaction is reflected in your ITR. For a walkthrough, see Form 26AS vs AIS vs TIS explained.

6. Reporting Capital Gains Incorrectly — or Not at All

If you redeemed mutual fund SIPs or sold shares during the year, you have capital gains to report — even if the amount is small, even if there's a loss, and even if TDS was deducted. The most common error with SIPs is treating the entire redemption as a single transaction instead of computing gains on a first-in-first-out (FIFO) basis for each SIP instalment.

For AY 2026-27, the rates are:

How to avoid it: Download your capital gains statement from your broker (Zerodha, Groww, etc.) or AMC. Most brokers provide a pre-computed tax P&L report that breaks down STCG and LTCG separately. Report each category in the correct schedule of your ITR.

7. Claiming Deductions Under the New Regime

If you've opted for the new tax regime — which is the default for AY 2026-27 — most deductions under Chapter VI-A are not available. This includes Section 80C (PPF, ELSS, life insurance), Section 80D (health insurance), HRA exemption, and LTA. Only the standard deduction of Rs 75,000 and employer's NPS contribution under 80CCD(2) are allowed.

Yet many employees copy their deduction claims from previous years without checking which regime they've selected, resulting in inflated deductions that the CPC disallows during processing — leading to a tax demand.

How to avoid it: Confirm which regime you're filing under before entering deductions. Under the new regime, leave Chapter VI-A deductions blank (except 80CCD(2) if applicable). If you want to claim deductions, you need to opt out of the new regime by filing Form 10-IEA before the due date.

8. Not Reporting Exempt Income

Certain income components are exempt from tax but still need to be reported in the exempt income schedule of your ITR. Common examples for salaried employees include:

• Leave encashment received on retirement or resignation (exempt up to Rs 25 lakh under Section 10(10AA))
• Gratuity (exempt up to Rs 20 lakh under Section 10(10))
• Employer's contribution to EPF (already excluded from salary, but taxable interest on contributions above Rs 2.5 lakh/year must be reported)
• Reimbursements like food coupons or transport allowance

Failing to report exempt income doesn't save you tax — it raises flags when the department sees the payment in your Form 16 but nothing in your ITR.

How to avoid it: Check Part B of your Form 16 for any exemptions listed under Section 10. Report these amounts in the Exempt Income schedule of your ITR, specifying the relevant section.

9. Providing Wrong Bank Account Details

This sounds trivial, but it causes real problems. Your income tax refund is deposited directly into the bank account you specify in your ITR. If the account number is wrong, or if the account isn't pre-validated on the income tax portal, your refund will bounce and you'll need to file a refund reissue request — a process that can take months.

How to avoid it: Before filing, log into the income tax portal and pre-validate the bank account where you want your refund. Use the same account for e-verification (via net banking or EVC). Double-check the account number and IFSC code in your ITR before submitting.

10. Not E-Verifying Within 30 Days

Filing your ITR is not the final step. Your return is considered invalid until it's e-verified. The deadline for e-verification is 30 days from the date of filing (reduced from the earlier 120-day window). If you miss this deadline, your return is treated as if it was never filed — you lose the original filing date benefit and may need to file a belated return.

How to avoid it: E-verify immediately after filing using Aadhaar OTP, net banking, or your pre-validated bank/demat account. The entire process takes under two minutes. For detailed steps, see our guide on how to e-verify your income tax return.

A Quick Pre-Filing Checklist

Before you click "Submit" on your ITR, run through these checks:

1. All Form 16s from all employers are accounted for
2. Interest income from every bank account and FD is reported
3. Capital gains from mutual funds and shares are included
4. AIS has been reviewed and all transactions are reconciled
5. You've selected the correct ITR form and tax regime
6. Deductions match your actual regime (old vs new)
7. Exempt income is reported in the exempt income schedule
8. Bank account is pre-validated and details are correct
9. TDS credits match Form 26AS

The Bottom Line

Most ITR filing mistakes stem from incomplete information rather than intent to evade tax. The income tax department's data matching is sophisticated — your AIS already knows about your mutual fund redemptions, FD interest, property purchases, and high-value transactions. The safest approach is to assume the department knows everything and file accordingly.

However you file, the principle is the same: report everything, claim only what you can prove, and e-verify the moment you file.