Know more about Income Tax Declaration

Know more about Income Tax Declaration

Come January and everyone starts thinking of investment declaration. Most of them wonder why the declaration is being asked in January by the companies/employers. This is a provisional statement that has details about your proposed investments and expenses that are Income Tax deductible. At the financial year end, you need to provide supporting Investment Proofs for these investments that you have specified in IT declaration.

Employer asks for this information, because they want to approximate how much will be your final taxable income (after deducting the tax saved through Section 80C investments, House Rent Allowance, Home loan and medical bills. According to which they can cut a constant amount of Tax Deducted at Source each month.

To calculate Tax Deducted at Source, your employer considers the declared investments and expenses that are either Tax Exempted (or) eligible for tax deductions under Income Tax Act.You need to submit both IT investment declaration and Investment proofs (documents) to your employer. If you do not submit the required investment proofs at the year end, your employer will then be forced to deduct complete tax without considering your provisional investments (IT-Declaration).

The Income Tax Department has also issued a circular and made it very clear to all the employers to verify the genuineness of each claim made by the employee. So, the verification of investment proofs will be more stringent by the employers. Some of the examples of the target options are life insurance premiums, Equity Linked Savings Scheme investments, Rent, Ulips and home loan related numbers.

For example – If you had declared that you will invest Rs 50,000 in LIC policy and Rs 30,000 in Tax saving mutual funds Equity Linked Savings Scheme . The total is Rs 80,000 . Now your employer will deduct Rs 80,000 from your projected income for the year and arrive at net taxable income and find out how much is the tax you need to pay at the end of the year (projected) . Now he will just divide it by 12, and find out the monthly number and start cutting that much tax each month from your salary. Now when the month of Dec/Jan arrives, your employer asks you for investments proof. Now when you actually give it to them, they recalculate things and see if things are matching with what you declared in the start of the year or not.

The employee also has an option to submit details of his income apart from the salary thereby requesting the current employer to withhold taxes on the same. The employee can also submit a copy of his tax computation/pay slips provided by the previous employer (in case dual employment in the same fiscal year). This saves the employee from the hassle of paying/calculating advance tax, however the employee must submit adequate supporting documents such as interest certificates (for interest) or rent .

How does Investment declaration work.

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