With just days remaining before the July 31 income tax return filing deadline, tax professionals report that first-time investors are repeatedly making avoidable mistakes while filing their returns. According to tax experts, confusion over long-term capital gains (LTCG), exemption limits, the correct ITR form and AIS reconciliation is leading many new investors to make errors that could delay or complicate their tax filing process.
CA Abhishek Soni identified four primary mistakes first-time investors commonly make while reporting capital gains: confusing short-term and long-term capital gains, choosing the wrong ITR form, incorrectly calculating gains from shares or mutual funds, and missing important details while reporting capital gains. According to the latest reports, two additional critical mistakes have emerged that taxpayers must avoid: not reporting bank interest because TDS was already deducted and not reporting LTCG below the ₹1.25 lakh exemption limit.
Many taxpayers mistakenly assume that income on which TDS has already been deducted does not need to be disclosed in the ITR. As reported by Siddharth Maurya, Managing Director of Vibhavangal Anukulkara Pvt. Ltd., this misunderstanding is responsible for several notices and adjustments under Section 143(1)(a). He explained that TDS is only a mechanism for advance collection of taxes and does not determine a taxpayer's final tax liability. Interest from savings accounts, fixed deposits, recurring deposits and other bank deposits remains taxable according to applicable income tax slabs, subject to eligible deductions under Sections 80TTA and 80TTB. Banks report interest income to the Income Tax Department, and any mismatch between the ITR and AIS can result in adjustments under Section 143(1)(a).
According to Gaurav Singh Parmar, Associate Director at Fincorpit Consulting, many new investors mistakenly believe they do not need to report capital gains if the gains fall below the exemption limit. As reported by Parmar, the ₹1.25 lakh exemption creates a false sense of safety, so many think no filing is needed while forgetting the total gross income rule. Shourya Garg, Advocate at Garg & Garg Tax Associates, noted that the trend is not surprising given the sharp increase in demat account openings over the past few years, with many first-time investors still not realizing that even small gains need to be disclosed. The latest guidance confirms that while the gains may be exempt from tax, the transaction is not exempt from reporting.
As reported by tax experts, many investors rely entirely on the pre-filled Annual Information Statement (AIS) rather than reconciling it with broker statements and trading records, which can lead to mismatches that may trigger automated tax queries. According to Maurya, taxpayers should treat the Annual Information Statement (AIS) as a reconciliation tool rather than merely a reference document. Every income item reflected in AIS, Form 26AS and the Taxpayer Information Summary (TIS) should be verified against personal records before filing the return. The relaxation allowing LTCG up to ₹1.25 lakh to be reported through the simpler ITR-1 or ITR-4 has helped, but many taxpayers still manually enter capital gains instead of relying on broker-reported information, increasing the chances of mismatches and automated notices.
Google Trends data over the past three months shows rising interest in searches such as "LTCG u/s 112A," "what is FPI in income tax return," "income tax return filing" and "how to e-verify income tax return." The search pattern suggests that many taxpayers are seeking clarity on how to report investment income, reflecting the widespread confusion among first-time investors about LTCG reporting requirements and the correct filing procedures. The latest data indicates that mismatches between the Income Tax Department's records and taxpayer returns are creating significant compliance challenges.
