Investment Declaration for Tax Exemption: What you need to declare to your employer to avoid excess TDS : 07-01-2020

All employees are required to submit a tax declaration to their companies, but one who doesn’t pay attention to details, may end up paying higher taxes.

Income declaration

Income-tax laws require the employer to withhold taxes on the estimated annual salary of the employee on a monthly basis. For this purpose, the employees are required to declare the details of rent payable for the year, the amount of leave travel assistance (LTA) that would be availed during the year, the interest payable on loan, the amount of investment eligible for deduction under Section 80C and personal income like rental income, interest etc.

Based on such declaration, the employer considers the personal income, provides appropriate exemptions / deductions from the taxable salary of the employee, and withholds taxes on a lower amount.

During the year, the employee is expected to submit proof of expenses incurred in support of the declaration. If the employee is not able to support the declared expense with the required evidence within the prescribed timeline, then the employer would reverse the amount and recover the tax shortfall from the salary payments for the remaining months. All employers would provide a cut-off in submission date in January / February to ensure that shortfall of taxes are recovered in the subsequent months. Hence, one needs to be careful that the amount declared is realistic or else you may face the prospect of taking home a drastically-reduced pay in subsequent months.

Furnishing of evidence

Tax rules require the employee to furnish details and the evidence in Form 12BB, which requires the following details:

# Name and address of the employee
# PAN of the employee
# Financial year

As mentioned above, the employee has to mention the amount of deductions to be claimed and also the actual amounts as per the documentary evidence in the said form. The following are the different nature of claims that can be provided in the form:

1. House Rent Allowance (HRA) – An employee receiving HRA from the employee can claim the exemption (as per the tax laws) by providing the details of rent paid, name of landlord, address of landlord and PAN of landlord (in case rent paid is more than 1 lakh during the financial year).

2. Leave travel concession or assistance – An employee can claim the leave travel concession (as per the tax laws) by submitting the proof for travel expenses (air ticket and boarding pass).

3. Deduction of interest on borrowing – Interest paid on housing loan, education loan etc. as per tax laws are eligible for deduction on submission of the interest paid certificates along with the details of interest payable / paid, name, address and PAN of lender / financial institution / employer / others.

4. Deductions under Chapter VI-A – Details of investments in eligible securities, life insurance premiums, principal amount of loan repayment, mediclaim payments etc.

All the above claims have to be substantiated with documentary evidences such as receipts, loan certificates etc. The employee has to give a declaration that all information is complete and correct by affixing his / her signature.

Mode of submission

Employers may collate Form 12BB, income disclosure details and documentary evidences online where employees need to upload the details in the company’s online portal, and the payroll team would validate the same. Alternatively, some employers could collate the details manually or have a combination of both.

When to submit the declarations?

Employers communicate a cut-off date to employees for submission of all declarations and proofs and the employees have to abide by the prescribed date.

In case documentary evidences are not available prior to the due date of submission, then the employee has to claim the same in his tax return and claim a refund of taxes. However, the possibility of the tax officer scrutinising such returns is higher. Hence it is advisable to provide declarations carefully and in time to avoid these challenges later.

Source : Financial Express