Declaration and Submission of Investment Proof from an Individual Taxation perspective

As per the Income Tax guidelines, Income Tax is to be deducted annually for every financial year starting 1st April to 31st March. Every employer has the responsibility to deduct tax or TDS (Tax deducted at source) from employee salaries, every month and on a proportionate basis.

To ensure that the amount deducted is fair and takes into account any tax-deductible expenses or investments (discussed later) the employee may be undertaking, he or she is expected to provide an investment declaration. This declaration is typically submitted within the first quarter of the financial year, i.e., by June end to the employer's HR team. The idea of doing this is to avoid the hassle of going for an income tax refund at the end of the year while also ensuring enough liquidity in the hands of the employee since less TDS is deductible.


Let's understand this with the help of an Illustration

Mr. Jai and Mr. Sagar are working in the same organisation- BBC Technologies Pvt.Ltd. Both the employees have same salary structure i.e Taxable Salary of Rs.4,80,000 p.a. and invested Rs.1,50,000 in Section 80C. Mr. Jai has submitted his investment declaration along with the proofs of investment to his employer on time and Mr. Sagar has not submitted any investment declaration to his employer. So, lets see the tax implications and computation made by BBC Technologies Pvt Ltd. in both the cases:

Mr. Jai Taxable Income

Amount (Rs.)

Mr. Sagar Taxable Income

Amount (Rs.)

Salary chargeable to tax

4,80,000

Salary chargeable to tax

4,80,000

Less: Deduction u/s 80C

1,50,000

Less: Deduction u/s 80C

-

Taxable Income

3,30,000

Taxable Income

4,80,000

 

Now from the above computation, you can see Taxable Income of Mr.Jai is Rs.3,30,000 which will result in lower TDS as compared to Taxable Income of Mr. Sagar which is Rs.4,80,000 which will result in higher TDS. So, we can simply say that, BBC Technologies Pvt Ltd. will deduct excess TDS on Mr. Sagar’s income due to not submitting declaration of Section 80C investments. But Mr. Sagar can claim that Section 80C investment of Rs.1,50,000 later at the time of filing income tax return and can also claim excess TDS deducted by the employer.

Therefore, to avoid the excess deduction of TDS or claiming the TDS refund later, employees should give investment declaration along with relevant proofs on time to their employers.


However, employers also need to plan TDS payables at their end, especially at the end of the financial year. They, therefore, request employees to submit proof of tax-deductible expenses or investments by December, January or February end, even though technically employees can make these expenses or investments at any time before 31st March.

Proof of tax-deductible expenses and investments can be provided through submission of Form 12BB along-with supporting documents. Do note that the responsibility to offer proof lies solely on the employee which he should submit to the employer as per organisation policy (typically December, January or February end).

About Form 12BB: Form 12BB is prescribed by the Central Board of Direct Taxes (CBDT). Earlier, there was no specific format for making the declaration, but from 1st June 2016, the process of disclosure has been standardised with the introduction of Form 12BB. 


The following expenses can be claimed as deductible by salaried individuals through Form 12BB:

  1. House Rent Allowance (‘HRA') *        
  2. Leave Travel Allowance (LTA)
  3. All Deductions specified under Chapter VI-A,
  4. Interest payable on home loan under Section 24(b).

* Where the employer does not provide HRA, it is still possible to claim an exemption for the rent paid under Section 80GG of Income Tax Act. In any case, if you forget to submit the HRA Receipts to the employer, don't worry, you can still claim the HRA exemption at the time of filing Income Tax Return.

Many vehicles can help you save up to Rs.45000 in taxes while also giving you good returns over the long term. These investments are possible through Section 80C under the Income Tax Act, where you can invest up to Rs.1,50,000 of your earnings into certain investments which will then become deductible from your total taxable income, hence lowering your total tax liability.

The various tax saving schemes where you can save your money and are allowed as deductions under section 80C are:

  1. Provident Fund
  2. Voluntary Provident Fund
  3. Life Insurance Premium
  4. Equity Linked Saving Scheme (ELSS)
  5. National Savings Certificate
  6. Mutual Fund/ SIP
  7. Unit Linked Insurance Plans (ULIP)
  8. Fixed Deposit/ Post Office Time Deposit Schemes

It is best to begin investing in the first quarter of the financial year so that you can spread your investments over the year. This will not burden you at the end of the year and also allow you to make informed investment decisions.


Question: If I have not declared my investments on time to the employer? Then What?

Answer: If you have not declared and submitted the proof of investments to the employer, your employer will initially deduct excess TDS, which you can further claim at the time of filing Income Tax Return.


CAxpert can help you to claim your income tax refunds by filing income tax returns.