Submit investment declaration to your employer on time to avoid excess TDS
A investment declaration is basically a list of the tax saving investments which the employee proposes to make during the year.
Archit Gupta, Founder & CEO ClearTax says why it is beneficial for the employee to share investment declaration at the start of the year, "So that the TDS is deducted considering the investment the employee wants to make, which will lead to deducting a lower amount of taxes, this will lead to higher salary in hand every month."
TDS is covered under Section 192 of the Income-tax Act, 1961 making it the obligation of the employer to withhold taxes at the time of payment of salaries. The investment declaration being referred to here pertains to the tax saving investments which the employee proposes to make during the year.
On receiving such a declaration from an employee, the employer will take into account the proposed tax saving deductions from salary income before computing the estimated tax to be deducted at source. This would reduce the total estimated salary income for the employee for the full year and therefore the estimated TDS for the year would also correspondingly get reduced. Most commonly used tax saving investments fall under the section 80C of the Income Tax Act which has an annual limit of Rs 1.5 lakh. The declaration, however, will also cover other deductions such as section 80D and section 24 available under the Act that would help the tax payer reduce his/her tax liability.
At this stage when the employer only asks for the declaration, one is not required to submit any supporting documents as proof of the tax saving investments as this declaration is only for proposed tax saving investments/expenditures. "The declaration is not restricted only to investments. It also extends to any other sources of income which an employee might have such as loss from house property on account of interest repayment of home loan", says Gupta.
Most employers would ask for the supporting documents or the proof of investments to be submitted only in the month of January or February 2019.
However, make sure the submissions are realistic as a declaration of higher proposed tax saving than what is actually done could result in higher TDS in the months of January to March of the relevant financial year.
Employers may set their own cut-off dates for submission of the proposed investment declaration and its better for the employees to submit the declaration well in-time to avoid excess deduction of tax. Make sure that your PAN is correctly mentioned so as to ensure that the tax amount deducted by the employer is correctly reflected against your PAN when the employer submits its quarterly TDS returns to the income tax department.
Here are some common elements of proposed investment declarations made to employers:.
Investments and expenses
Investments in Equity Linked Savings Schemes (ELSS) of mutual funds (MFs), life insurance, Public Provident Fund (PPF), NSC, Sukanya Samriddhi Scheme and 5-year tax saving fixed deposit qualify for deduction from gross total income under Section 80C of the Income Tax Act. If you have school going children, the tuition fees paid also get the tax benefit under Section 80C.
Click here to know about the various tax savers that you can consider while submitting investment declaration to your employer.
Housing loan repayment (principal and interest)
Ask you home loan lender to issue a provisional statement showing the break-up of the principal and interest component of your EMI during FY2018-19. This will help you declare to your employer the amount of tax benefit that you would be claiming against your home loan repayment. The principal paid towards home loan repayment qualifies for section 80C benefit while the interest portion also helps in tax saving under section 24 of the Income Tax Act
Possession/construction completion certificate are a must for availing reduction in TDS by some employers, so declare accordingly i.e. declare only if you have the documents required by your employer to claim the relief or about to receive them for sure. Further, the date of loan taken and the date of possession are mandatory to avail the benefit.
Premium paid towards health insurance qualifies for tax benefit under section 80D of the Income Tax Act. If you haven't got a cover, buy it. If you already have one then declare the renewal premium amount. On the premium towards self, spouse, children and parents, the maximum deduction that can be availed is capped at Rs 25,000 a year , provided the age of the individual is not above 60. If the premium paid by individual is towards health policy for a parent (senior citizen with age 60 or more), the maximum is capped at Rs 50,000.
New Pension Scheme (NPS)
If you have invested in NPS on your own, i.e., outside salary, declare the amount that you wish to invest this FY within the maximum Rs 50,000 allowed for tax benefit purpose under section 80CCD (1B).
House Rent Allowance Exemption
For those who claim HRA relief, the Permanent Account Number (PAN) of the landlord is mandatory. This condition is not applicable for those whose rent payment is less than or equal to Rs 1 lakh per annum. There is no maximum limit, but HRA exemption is linked to your salary. Click here to know how to calculate it.
What you should do
The actual tax-saving investments made by you during the rest of this financial year can be different from those declared by you in the above mentioned declaration. However, the deduction from taxable income (i.e. the tax saving benefit) will be given only on the basis of the actual evidence submitted and not on the basis of the proposed declaration made at the start of the fiscal. . More importantly, keep documentary evidence of each investment and expense made so as to be able to furnish them to your employer at the end of the financial year.