The closing of 2nd quarter of the financial year is in the vicinity and tax season for employees is about to start. Knowing the tax rules, exemptions, and a variety of ways to save tax is important to plan tax saving. In India, employers deduct tax from the salary of employees on monthly basis and deposit the same with govt every month. This requires calculating the taxable salary of each employee.
This year, with the introduction of a new tax regime, it is more important to do your calculation in advance to understand which regime will be beneficial for you – New or Old!
Now, as you know certain investments and reimbursements is deducted from the taxable income, making declaration about the investments is important to save good amount of income tax.
The process goes like this. At the beginning of the financial year, employers tell you to declare your investments, calculate your taxable income and pay salary to the employees accordingly. The tax which is deducted on monthly basis based on this calculation is called Tax Deducted at Source or TDS. This requires employees to make the declaration of the investments at the beginning of the year. In the month of December and January employers ask for actual proofs of investment in relation to the declaration made by the employees earlier. In case, the investment declaration is not made the employees cannot avail exemptions from tax on account of investments. But in case an employee forgot to make an investment declaration in time he can claim the excess tax deducted from his salary later.
Let us explain here below the most important aspects in relation to declaring and submitting investment proofs for tax saving.
Know the regulations as well as pros and cons of making investment declaration
Declaring your investment helps the employer deducting the correct and appropriate tax amount from the salary of the employees. Ascertain investments are subject to tax exemption by declaring them the employee can reduce the tax load on their income. Knowing which investments can help you save tax and to what extent is important. Besides travel reimbursement and few other expenses like house rent are also subject to tax exemption. Employers begin collecting the documents as proofs of investment from the month of December and January to validate the declaration made by the employees earlier. This takes 2 to 3 months and the process becomes complete by March every year.
What are the implications that an employee can face in case he cannot furnish that declarations of his investments in time?
Let us have a look at the possible implications.
- First of all, he is liable to pay a much higher amount of income tax on his income.
- In case the declarations are not proper and does not match with the documents he may need to pay more tax on his income.
- Often this extra amount of tax may require an amount equal to two or three months of salary.
What are the investment proofs for saving tax?
- Proof of investments under ELSS or other 80C investments
- Life insurance and health insurance premium.
- Rent receipts to claim deduction under HRA.
- For the sake of claiming your LTA you need to provide all the travel receipts including boarding passes and flight tickets.
- For getting reimbursement against a home loan you need to provide home loan certificates as proof of the same.
You can also show saving bank interest, FD interest
Do you know your regular bank savings and investments are also covered under the income tax regulations concerning tax exemption? You can also disclose your interest earned from saving bank account, yearly FD/RD interest, and the capital gains from the shares and mutual fund during the year. This helps the employers getting a complete view of the taxable income and the income tax you are liable to pay.
Don’t worry if you are late in submitting the proofs. You can claim it later!
If you just forgot to do the needful in regard to submitting your documents for the investment, we must assure you that you do not need to worry since you can claim your deductions later as well. Obviously being late and forgetting to submit your proofs of investments in time is never recommended and is not healthy for your personal finance, but in certain conditions, if you forget or just do not find time to take of these things, you do not need to worry. If employees who actually become able to invest in tax-saving financial instruments later can submit their proofs of investments at the time of filing the tax returns and can claim the deductions.
It is not mandatory to submit proofs when filing tax returns
When filing the income tax returns all that you need is to furnish all the necessary information about the investments and at this point of time the employee does not need to provide any validating documents as proofs of the information provided. These proofs are only required by the employers as they deduct the TDS and serve as the third party validating the claims made by the employees. While documents are not mandatory any employee can further be needed to provide them in case of cross checking. So, it is advisable to provide always true and exact information about the investments made by the employees.
You need to furnish proofs of investments in the month of February and March against your earlier mentioned investments
It is understandable that for premiums and investment installments that are due in March cannot always be validated with receipt or any document months ago. In case you do not have the premium receipts with you or your SIP or ELSS statement does not reflect the installments paid, you have the option of making a declaration and employers will provide you a form for this purpose. When the year-end tax filing would be done you will be given the exemptions based on the declaration made by you.
Finally, you can always get your excess taxes returned to you by furnishing the documents for the investment made. While it is always better to declare and furnish things in time, you can always furnish investment information and supporting documents later to claim your rightful deductions.
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