If you don’t submit proof of tax-saving investments and expenses, your employer will deduct tax as per the applicable slab rate, without considering tax deductions

Though a few months are still left for financial year 2017-18 (FY18) to end, your employer will soon ask or might have already reminded you to submit proof of tax-saving investments and expenses to claim various tax deductions. If you fail to submit the documents, your employer is liable to deduct tax as per the applicable slab rate, without considering tax deductions. And if that happens, you may end up paying extra tax in the form of tax deducted at source (TDS), from the salary of the remaining months of the FY. Here’s what you need to do to avoid paying more tax than you have to.

Document submission
There is no specific date mentioned in the income tax laws regarding submission of tax-saving investment documents to the employer. “As such there is no statutory time limit for submitting proofs of investments and expenses, and every employer has its own internal policy of collecting the proofs from the employees,” said Suresh Surana, founder, RSM Astute Consulting Group, a chartered accountancy firm. But usually most employers ask for this by end of December or by mid-January. This helps the employer to consider the proofs of investments and expenses and deduct tax according to taxable income from the remaining months’ salaries. “According to section 192 of the income tax Act, every employer who is paying salary to an employee must deduct tax before making such payment,” said Archit Gupta, founder and chief executive officer, Cleartax.in, an online tax services firm. This section of the income-tax Act also says that it shall be the responsibility of the employer to obtain necessary proofs and particulars before allowing this tax deduction. Apart from this, the Act also requires the employee to furnish proofs as requested so that the employer can make proper tax deductions, added Gupta.

For each kind of declaration, there is a specific form assigned under the tax laws. “Section 192(2D) provides that the employer shall obtain from the employee, evidence or proof for particular claims such as house rent allowance (where aggregate annual rent exceeds Rs1 lakh); leave travel concession or assistance; reimbursement of expenses; deduction of interest under the head ‘Income from house property’; and other deductions under Chapter VI-A (sections 80C, 80G, and others), in Form 12BB,” said Surana.

Not only investments and expense proof, an employee also has to declare any additional income that she may have earned from other sources apart from the salary during the year, so that the employer can take into account these incomes as well to calculate the overall tax liability. “This way, if any extra tax is required to be paid, it is paid timely. And if there is a loss, refunds can be avoided as the employer will (accordingly) adjust tax deducted,” said Gupta.

What if you don’t submit the documents?
At beginning of the FY, your employer would have asked you to furnish a declaration of planned or scheduled investments and expenses for the year. Once you make the declaration—which will usually reduce your taxable income—the employer deducts tax accordingly from your monthly salary.

The proofs that you submit close to the year-end may be the same as you had declared earlier at the beginning of the FY, or they may be different. All proofs are acceptable as long as those instruments qualify for tax deduction.

What happens if someone fails to submit the proof documents? “The most important consequence is that the estimated total income of the employee will be on the higher side and hence excess tax will be deducted at source,” said Surana. So, you will end up paying more tax by way of TDS on salary, and then go through the lengthy process of asking for a refund while filing tax returns.

Besides that, while you can claim deduction for most of investments and expenses while filing your return, there are a few that can only be claimed via the employer, else they become taxable. “Some expenses or reimbursements can only be claimed via the employer, such as medical reimbursements, LTA, phone bills or travel claims. These can’t be claimed at the time of filing tax returns,” said Gupta.

If you are unable to provide the proofs or make the required investments before the due date given by your employer; or if some investments or expenses are scheduled post the due date, such as insurance policy premium, children’s school fee or home loan EMI, you may ask your employer for an extension. But “it depends on the employer. Some allow the deduction and later seek proofs within the last few days of March. Or they may only allow what has been paid till the due date of submission of proofs to them,” said Gupta.

If you are not able to submit investment proofs or make the investments after this due date, don’t worry because you can claim for a refund in the tax return for all the investments made before 31 March that qualify for tax deductions. While this option is open for you and you can claim a refund, it would be more convenient to have the proofs ready when your employer asks for them.

Ideally, you should plan your tax saving investments in such a way that they are made by the end of December.