In the beginning of every year the employer asks the employee to submit an declaration about their investments, house rent details and any other tax saving investments they have done.
Every employer asks this information to compute your estimated taxable income of the year after deducting all the tax savings investments you have declared. So that he can deduct TDS from your salary.
But at the end of every year you need to submit the proofs of your declared investments and expenses. Many employees have a wrong notion that they have to invest the same amounts as declared in the same order. The declaration you have submitted in the beginning is just an estimation, you need not invest in the same manner. Based on the proofs you submit at the end of year the employer will recalculate tax again make suitable adjustments in TDS.
For example: -
You had declared that you will invest 20,000 in LIC and 50,000 in tax free bonds. But you failed to invest in the year. At the beginning of year, your employer while calculating your taxable income he would have deducted 70,000 under section 80C and arrived at estimated net taxable income and deducted TDS every month.
In the end when you submit proofs of your investment he will recalculate and make necessary payments if required.
Things to be noted down by employers and employees: -
After the new finance budget 2017, Employers have to note down the new changes in tax laws to compute taxable income. Employees have to take a look on changes in tax saving investments so that they can invest in highest tax saving investments. Here are the changes in finance act 2017;
1. Rebate under section 87A has been reduced from Rs. 5,000 to Rs. 2,500.
2. To claim rebated under 87A, total income less deduction should be less than Rs. 3,50,000. Earlier it was Rs. 5,00,000.
3. No deduction will be allowed for investing in Rajiv Gandhi Equity Saving Scheme.
4. Earlier one can deduct the interest on home loan paid for rented out premises against rental income and also claim deduction upto Rs. 2,00,000 for home loan interest in respect of self-occupied property. But now the aggregate of total deduction of home loan interest shall not be more than 2 lakhs. (rented + self-occupied).
List of Documents to be submitted to employer: -
1. LIC premiums paid: - submit the premium paid receipts.
2. Public Provident Fund: - Xerox copies of passbooks or online payments e-receipt.
3. Tuition fees: - Receipts from school with school seal and signature.
4. House rent allowance: - Rental receipts to be provided along with lease agreement or rental agreement. If the rent paid is more than Rs.1 lakh per annum then the PAN card copy of the landlord is to be submitted.
5. Repayment of home loan (PRINCIPAL amount): - Certificate from banker containing the yearly details of principal and interest paid.
6. Deposits in New Pension Scheme: - No proofs need to be submitted to employer if such deposits are made in the course of employment by the employer. But if you make any personal deposits outside the employment, then copies of PRAN card and NPS transaction statement are to be submitted.
7. Medical insurance premium: - This premium should be paid by other than cash only. The insurer will provide you a statement of yearly paid premium details at the end of each year for section 80D purposes.
When you submit all these proofs to your employer at the end of financial year (mostly provided on January), he will re calculate the tax payable and take suitable action. If additional tax is to be paid, he will deduct that in the next months (February& march). If already deducted amount is more than the amount to be deducted, we can claim it by filing income tax return as refund.