Declaring and Submitting Proofs for Investments???

For every salaried individual in India, declaring and submitting proof of investment to the employer is an essential practice. It is because of this process that the income tax payable is estimated correctly and the tax burden for the employee gets reduced through deductions under different sections of the Income Tax Act, 1961.

Let us understand the process step by step.

1. Declaration of Investment
The employer asks for the proposed investment declaration from the employee at the start of the financial year i.e. estimate of investments that the employee is planning to make in the financial year. Based on the submitted estimated investment details, the employer calculates the estimated taxable income and consequent TDS amount to be deducted from the salary. Towards the end of the financial year, the supporting proofs for the actual investments need to be submitted in Form 12BB,


2. Components of the Declaration
The declaration includes details of:

* HRA wherein the employee is required to submit the rent and landlord’s details.
* Leave Travel concession wherein details of actual expenditure are to be submitted.
* Details of interest under the head “Income from house property” wherein details of lender are required to be submitted.
* Investments made for deduction under chapter VI-A i.e. section 80C,80CCC,80CCD, etc
The employee should submit the details as applicable to him.

3. The Process:-
Based on the proposed investment, the employer calculates the taxable income of the employee, taking into account the tax benefits applicable. Once the amount is determined, the TDS amount is calculated depending on the income tax slab. The TDS (if any) is deducted from the salary every month till the submission of investment proofs takes place. Based on the actual investment made, the TDS is re-calculated and the outstanding amount (if any) is adjusted accordingly.

4. Submission of proofs:-
The investment proofs need to be submitted to avail of the deductions subject to various sections of the Income Tax Act. These deductions on your taxable income can be enjoyed after you provide the supporting documents of investments made up to pre-specified limits.

However, no trouble awaits you if the proposed and actual investments don’t match. Here the taxable income is calculated taking into account the proofs of actual investments made. This final submission in the phase of December to January or any preferred time by the employer is used to cross-check and verify investments of the year and incorporate the tax deductions associated.

What if you fail to submit investment proofs?

Despite the declaration of the proposed investment, if you fail to submit investment proofs, the employer computes a higher taxable income again and accordingly will deduct TDS from your salary at a higher rate.  This can be the situation if you do not invest or fail to upload or physically provide the investment documents.

1. Busting the tax myth:-

Many believe that tax benefits are not available anymore if you do not submit the investment proofs to the employer. This is completely a myth. You can claim a refund of the excess TDS deducted at the time of filing your income tax return.

Simply buy term insurance online or avail of the ULIP tax benefits by purchasing the policy closer to the time of return filing. Post that, claim the deduction amount as a refund, which you have already paid as TDS.

However, claiming a refund can be a hassle, as compared to getting the TDS deducted from your salary.

Thus, it’s always a wise choice to make the investment declaration beforehand and submission of the relevant proofs on time.