Gearing up for your investment proof collections

Every year in Jan/Feb months, companies are usually scrambling to collect investment proofs from their employees. Based on all the proofs that are submitted and which are acceptable under the IT act, the tax deductions to be made for the balance months in the year are decided. These investment proofs are in line with the declaration made by them at the beginning of the financial year (around May/June time-frame). The actual investments can be more or less from what was stated earlier in the year. But if the required proofs of investment are not submitted before the given deadline, for all practical purposes, the company will considers if the investment was not done at all.

It is important to educate the employees about what needs to be done to complete this investment proof declaration in time and in order. Organizations need to also ramp up their systems and infrastructure to ensure that they can collect and validate all of these investment proofs in a short span of time.

The requirement

The declaration of planned investments and expenses help you avoid unnecessary tax deduction at source (TDS). According to income tax rules, it is the obligation of an employer to deduct TDS from the monthly salary of employees, based on the income tax slab applicable to them.The collected TDS needs to be deposited with the tax authorities by the employer. However, employers are required to consider declarations made by the employee regarding investments at the beginning of the year and evaluate the taxable income and applicable tax accordingly.

Further, tax rules also require employers to verify the claims of the employees by asking them to submit proofs and adjust any differences in tax liability by adjusting the TDS in the remaining months of the financial year. Companies usually start collecting investment proofs by middle of Jan or late Jan and end all collections by 15th Feb. That way, any adjustments in TDS can be made during the balance months of Feb and March for the financial year.

If employees do not submit the proofs

Where an employee has made any investments and expenses, and wants the employer to account for them while calculating his/her tax liability, it is necessary for the employee to furnish the proofs. The employers need to collect the relevant proofs, and see if the employees have invested in the manner they declared. In case an employee fails to submit the proofs, the employer will go ahead and calculate the tax liability of the employee without considering otherwise allowable deduction and exemption and will deduct full taxes accordingly.

However, if you are making a monthly contribution like investing in an equity linked savings scheme (ELSS) through systematic investment plans (SIPs) or monthly payments in a unit-linked insurance plan (Ulip), you may not be able to provide proof of such investments for upcoming months; such as February or March.

However, some employers take into consideration such commitments and allow employees to provide proofs till March, for investments planned in the last couple of months.If premium for life insurance policies is due in February or March, then an employee can submit previous year's receipts along with a declaration stating that he/she will submit the actual premium receipt before 31 March.

As employees, even if you fail to submit the proofs to your employer, you can still claim the deduction provided you make the investment in the qualified instrument before 31 March. But it can be claimed only when you file your income tax return.

However, some benefits can only be claimed through employer. For instance, exemptions related to leave travel allowance (LTA) must be claimed through the employer. As per the income tax rules, LTA can be claimed twice in a 4-year block. Similarly, medical reimbursements need to be claimed only by submitting bills to the employer; else the employer will deduct the applicable tax on the eligible amount and pay you the remainder at the end of the financial year.

Besides that, though an employee can claim house rent allowance (HRA) benefit while filing her income tax returns, it should be mentioned as a component of her salary.Income tax rules do not require you to submit or attach any proof of investment or expenses along with your tax return, but make sure you retain the proofs of investment. In case of scrutiny, an assessing officer may demand the proofs to be furnished.

Better be on time, than sorry

It is better for employees to make tax-saving investments before the due date. If not, they will end up payingadditional TDS, which they can claim back only through their ITR. 

Suggestions and comments welcome

Rekha Jain

Rekha.jain@paysquare.com

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