For salaried employees, it is the time of the year to submit Income Tax Investment Proof. I know that we don’t like this exercise as it is tedious depending on length and breadth of investments. In this post, i will not discuss nitty gritty of tax savings or whether you availed all the deductions or not. This post will discuss being a salaried taxpayer what all points to check or taken care of to avoid mistakes before submission of Income Tax Investment Proof. Always remember that your employer is only responsible for TDS deduction based on your Income Tax Investment Proof submission. The employer cannot be held accountable if any wrong information is provided by the employee.
Before we proceed, i would like to share my earlier post i.e. Savings Tip – Back Load TDS. By implementing the tips shared by me in the post, you can effectively increase net take home salary by 8%-10%. That too without any efforts :). Secondly, you can also check my post 51 Important Points related to Income Tax. These two posts are linked to Income Tax Investment Proof submission.
Income Tax Investment Proof Submission – 5 Common Mistakes
1. Maintain a photocopy of Income Tax Investment Proof: In the majority of the cases, an employee does not maintain a photocopy of Income Tax Investment Proof. It is one of the biggest mistakes. You may remember for 3-4 months all the details submitted. Employees with a good memory will remember for one year but what next. Not many taxpayers are aware that Income Tax department can open your case within a period of six assessment year from the end of the assessment year in which the return is filed.
For example, during current Assessment year 2015-16, you filed a return for FY 2014-15. Now this year’s return can be called for scrutiny or opened till March 31, 2022. In other words, an Income Tax Return can be opened for scrutiny up to seven financial years from the end of the current financial year. Assuming my ITR is opened for scrutiny after five years in 2020. At that time, i will not remember details of Income Tax Investment Proof for FY 2014-15. A copy of Income Tax Investment Proof submission will come handy.
2. Financial Planning for Balance Months: An employer takes declaration from employees related to Income Tax Investment Proof at the beginning of FY. At that time, the only declaration is given, and employee gives the undertaking to provide Income Tax Investment Proof at the end of the FY. Usually, it happens that we are not able to invest as per initial declaration to save tax.
Let me take a practical example of one of my client. She had home loan, and she declared X amount as a deduction for Home Loan at the beginning of FY for Income Tax Investment Proof. It reduced her TDS liability considerably. Now in between she prepaid her home loan as she received a gift from her parents. She continued enjoying high take home salary until the time of Income Tax Investment Proof. When she submitted her Income Tax Investment Proof, the tax liability increased considerably. All the home loan tax deductions declared were reversed. She did not receive her salary for the month of Feb and March. On top of that, her employer demanded Y amount towards lower TDS deduction initially. She had to take a loan from her parents to take care of household expenses in Feb and Mar.
Therefore, you should do proper financial planning to take care of future expenses in case of mismatch in declaration and actual Income Tax Investment Proof.
3. Income from other sources: In many instances i observed that employer has stopped providing an option to declare Income from other sources. Generally, Employees don’t take this option seriously. An employee has to calculate and just declare the same. Income Tax Investment Proof is not required for this section. The employer does not accept declaration due to wrong info provided in most of the cases. In the event of income tax scrutiny, an employee claim ignorance. As there is no proof submitted, therefore, it put the employer in a fix.
It is important to check whether your employer is providing an option to declare income from other sources or not. If not then you need to calculate and deposit self-assessment tax on income from other sources. In many cases, the employee unknowingly ignored this column and then received notice from income tax declaration for non-declaration of income.
4. Bills for Perquisites and Allowances: As i shared in my posts on Perquisites and Allowances that an employee need to submit bills for some of these tax saving options. If you do not submit bills at the time of Income Tax Investment Proof, then the entire amount paid in advance will be taxable. Therefore, it is important to clarify from your employer. Though you might be receiving allowance and perquisite on a monthly basis. The bills should be submitted at the time of submission of Income Tax Investment Proof.
5. Declaration for Future Investment: This is another common mistake by employees. Assuming, my last date of Income Tax Investment Proof submission is Jan 20 with the employer. In this case, there is a possibility that i might be making some more investments at later date i.e. in Feb or Mar. For example, the premium for my LIC policy is due in Mar. In another case, an SIP was due in Feb or Mar for one of my client or Rent to be paid in Feb and Mar. In such cases, the employee has to submit a declaration with the employer on all such future investments. Based on employee declaration, the employer considers them for TDS purpose. Therefore, an employee should submit declaration so that it should be considered by your employer. Otherwise, you will miss the tax benefit.
Words of Wisdom: A small mistake or error in the submission of Income Tax Investment Proof may cost heavily. Therefore, the employee should take this exercise seriously. Normally an employer gives at least 30 days time to complete this exercise but like Income Tax Return, i found that 80% employees submit on last day only. I was also among this majority, but one mistake changed my life. After that, i was the first one to submit the proof. I was benefited being the first one. The HR team had sufficient time to check my proofs. In the case of any error or mistake, they used to alert me.
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