The Indian income tax laws cast an obligation on an employer to withhold taxes at the time of payment of salaries. Employers, therefore, withhold taxes on salary paid after allowing a deduction to the extent of prescribed investment/savings.
As a practice, at the beginning of a Financial Year, employees are asked to furnish their ‘Income-tax declaration’ consisting of details of the investments and expenses they propose to make during such FY. Based on such provisional declaration, the employer deducts tax at source on a periodic basis and a true up is done, before the end of such FY, either by deducting further taxes or deducting less taxes for the remaining period as per the actual proofs of investments/savings furnished by the employee. Therefore, it should not be surprising if you find yourself in an annual drill of gathering and furnishing tax-saving proofs to your employer.
Keeping in perspective the provisions of section 192(2D) of the Income-Tax Act, 1961 (Act) read with Rule 26C of the Income Tax Rules, 1961 (Rules) and the industry practices, this article attempts to guide you as what could be an appropriate proof for a given investment or savings in order to prevent excess deduction of taxes.
House Rent Allowance: To claim such allowance, an employee may furnish particulars such as name, address and PAN of the landlord in case the aggregate rent paid during an FY exceeds Rs 1 lakh. In case PAN of the landlord is not available, declaration in Form number 60 should be obtained.
Interest on loan taken for residential house property: In this case, name, address and PAN of the lender, a certificate from the lender bank/ institution containing details such as date of availing the loan, instalment amount and interest chargeable need to be submitted. Such document would also important where the employee may want to set off loss under the head income from house property against his salary income.
Tuition Fees: Copies of tuition fee receipts duly signed/stamped by the educational institution.
Leave Travel Allowance (LTA): Copies of travel tickets including copies of boarding pass in case of travel by air.
Investments under Section 80C: Investment/savings as prescribed under Section 80C gain significance as one can claim an aggregate deduction of Rs 150,000.
In case of a Public Provident Fund (PPF) account, which is the most popular investments avenues, an employee may furnish copies of relevant extracts of the passbook evidencing the deposits made and in case of an online account, the e-receipts containing your account details and transactions could be furnished.
In case of investments or deposits made in Sukanya Samriddhi Yojana, National Saving Certificate (NSC), Infrastructure Bonds, NABARD Rural Bonds and 5-year tax saving fixed deposit, submission of the deposit receipts, bond certificates or certificates etc., received from the bank may be furnished. In case of an Equity Linked Savings Schemes (ELSS) of mutual funds (MFs) and life insurance, employees may submit the ELSS fund statement and premium paid receipts, respectively
For employees who have taken a life insurance policy and wish to avail deduction on such premium paid, they may furnish the receipt obtained at the time of payment from the insurance companies and the relevant extracts of the bank statement evidencing such payment.
Employees can claim a deduction on instalments made of housing loan taken on furnishing of a certificate from the lender bank or institution specifying the amount paid towards principal repayment.
National Pension System (NPS): A copy of deposit receipt for amount deposited during the year and a copy of relevant extract of the bank statement.
Mediclaim Premium: Employees may furnish an 80D tax certificate obtained by the insurance companies in support of deduction of premium paid along with copies of extract of bank statement/ passbook evidencing such payment. Further, an employee may also furnish receipts/bills for any health routine/preventive check-up undergone during the FY.
Donations: In case of donations to certain approved funds, trusts, charitable institutions/donations for renovation or repairs of notified temples, National Defence Fund, Prime Minister’s National Relief Fund, etc., employee could submit the proof of donation by way of a receipt containing the particulars viz., Name and address and PAN of trust or institution, Name of donor, Registration number and its validity.
There are no standard guidelines issued by the department with respect to investment proofs to be produced for all the prescribed investments. However, as per the annual circular issued by the Central Board of Direct Taxes, the onus of confirming the genuineness and completeness of the proofs lies with the employer. Further, the circular also provides that if an employer is not satisfied about the genuineness of the employee’s claim regarding any deposit/ subscription/ payment made by the employee, he should not allow the same, and the employee would be free to claim the deduction/ rebate on such amount by filing his return of income and furnishing the necessary proof etc., therewith, to the satisfaction of the Assessing Officer.
Given the above, it is strongly advised to act on the principle of abundans cautela non nocet, that is to be abundantly cautious by furnishing all relevant proofs obtained while making such investments at the satisfaction of the employer to prevent any excess deduction of taxes. This will help avoid the time-taking process of getting a refund from the tax authorities after an income tax return is filed.
(By Akhil Chandna, Director, Grant Thornton India LLP, with inputs from CA Girish Varandani)