May 17 2021

As per Section 192 of the Income Tax Act, Employers deduct TDS (Tax Deducted from Source) from their employees’ incomes every month to deposit it to government accounts of authorised banks. In order to save on tax from the TDS deduction, employees are required to declare some investments and expenses that are tax exempted or eligible for tax deductions in the beginning of every financial year. The proof of these investigation declarations must be submitted by the employees by the end of the financial year, or else the entire tax would be deducted from their salaries.

Employees can save on tax by declaring investments such as House Rent Agreement (HRA), Leave travel Allowance (LTA), Home loan interests, insurance plans, Public Provident Funds (PPF) and Provident Funds (PF), medical insurance, children fees, etc. Most of these tax-saving processes fall under section 80c of the Income tax act, according to which up to INR 1.5 lakhs can be saved on tax every year by declaring saving investments or incurring eligible expenses.

Declaring and submitting investments proofs can be a very tedious task which can impact the financial stability of employees in the long haul if not done properly. Therefore, certain things are to be kept in mind while making investment declarations and submitting proof.

Plan the Balance Months According

While declaring investments for a year reduces the TDS liability of employees, it is also crucial to ensure that there are no mismatch in the declaration and the actual investment proof. In this case, the employee would be required to pay extra tax by the end of the year.

Also, it is not necessary that the investments have to be the exact number as the declaration. For instance, you might mention investing Rs 50,000 in Life Insurance and Rs 25,000 in PPF, but you can instead end up investing Rs 25,000 in Life Insurance, Rs 25,000 in PPF and Rs 25000 in Mutual Funds. You just need to ensure that the new investments fall under the same basket of deductions.

Inform about Future Investments

Typically, the last day to submit investment proof to the employer is around 15th January. Still, there’s a possibility that employees might need to make some investments in the later months, say February or March, including premium payments or SIP payments to be paid in these months. In such cases, the employees need to submit a declaration of such future investments to the employer, in order to save extra TDS deductions.

Maintain Records of investment proofs

In most cases, employees forget to keep a record of declared investments and submitted proofs. They might be able to retain the information about the details submitted for a year, but it is important that they keep records of previous years’ investment proof submissions. This is because many-a-times the Income Tax Department may reopen their case within a period of six assessment years from the end of the current assessment year. Having a copy of previous years’ submission would save a lot of time and hassle if the said situation arises.

Declaring income from other sources

A taxpayer earning income from other sources such as freelancing, gifts or business can claim deductions for expenses. Most employers do not provide this option to declare income from other sources. In this case, employees need to calculate and deposit self-assessment tax on income received from other sources.

Remember, any small error or mistakes done while submitting these investment proofs may cost heavily to employees. Hence, employees must plan their investment for the year and take out ample time to fill out the investment declarations and avoid waiting for the last day to finish everything.