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While availing tax breaks, Things to remember
January, 05th 2010

As the current financial year draws towards a close, ie, March 31, 2010, it is time to ensure that the necessary exemptions and deductions available under the Income-Tax Act, 1961 (the Act) are claimed appropriately and that necessary documentary evidence/proof is collated now to avoid any last-minute rush.

Further, the income-tax return is to be filed by salaried tax payers by July 31, 2010.

Proposed investments

Ideally speaking, investment planning to avail of tax benefits should begin at the start of the financial year itself. Generally, the employers ask for a declaration in respect of the various exemptions and deductions which the employee intends to claim during the financial year. This includes house rent allowance exemption, leave travel concession, medical reimbursement, other deductions U/S 80C like provident fund; public provident fund; national savings certificates; life insurance premium; equity-linked saving schemes; fixed deposits with banks for more than five years; repayment of principle amount of housing loan, etc.

Even though there is no specified format in respect to investment declarations, generally, every employer has its own declaration form which an employee is required to submit at the beginning of the financial year. Accordingly, the employer gives the benefit of exemptions and deduction and computes the estimated monthly taxes, which are then withheld from the salary and net salary paid to the employee periodically.

Actual investments

Towards the end of the financial year, generally in January/February, the employer asks for the necessary documentary evidence/ proof in respect of the exemptions/deductions claimed by the employee.

These include in case of rent, the rent receipts/lease deed; in case of life insurance, a copy of the premium receipt; a copy of the NSC in case of a national savings certificate; a copy of the passbook/receipts for PPF, etc.

Beyond employers

There are certain deductions, which an employee is eligible to claim only in his personal tax return. For example, U/S 80G, there are certain specified agencies like Prime Ministers Relief Fund, etc., wherein the donations made would be eligible for deduction and the employer can give the necessary relief.

However, donations made to other agencies like various charitable organisations, may not be covered within the list of the specified agencies. In such cases, the deduction needs to be claimed by the employee in his personal tax return.

Hence, the necessary documentary evidence in the form of receipt of donations, specifying that such organisation is eligible to issue such receipts for the individual tax payer to claim such deduction should be obtained.

Taxpayers beware

The employee must ensure that the investment proofs being submitted like medical bills, etc., are in the name of the employee or in the name of his spouse/children, as applicable.

That the documents/receipts pertain to the current financial year and are self-attested, as required by the employer. Further, an employee may be required to produce original documents for verification in addition to the photocopies being submitted to the employer.

The employee should ensure that the originals of all the aforesaid documents are retained by him for future reference and in case of any query from tax authorities.

Last & final call?

In case you miss the deadline specified by your employer in order to submit the proofs, generally, the employer would withhold the balance tax from the salary to be paid in the last quarter.

In that case, the individual can claim necessary exemption/deduction in his personal tax return and accordingly, claim refund from tax authorities.

The last quarter is in fact the right time to relook at your tax investment financial planning and collate the necessary documents to substantiate your claim vis-??-vis the employer and the tax authorities.

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