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Not sure if income will be taxable or not? Declare investments only if you disclose all your incomes
May, 07th 2019

It’s time for salaried individuals to submit their tax-saving investment declarations to their employers, so that their tax liability is calculated and the tax payable, if any, is deducted through TDS from the monthly salary. However, this year full tax rebate will be given on taxable income up to Rs 5 lakh. So, effectively, there will be no TDS on the total income of Rs 6,50,000, if full 80C benefit of Rs 1,50,000 is availed. If full benefits of health insurance, NPS, home loan interest etc are also taken, no tax would be payable on a gross income of even Rs 10 lakh.

You should, however, be cautious while declaring all your tax-saving investments and expenditures to your employer. Because, in case your gross income is Rs 10 lakh and after deducting all the tax-saving benefits, the taxable income becomes Rs 5 lakh, the employer will not deduct any tax. However, if you miss any income like interest on FD or savings account or from some other sources and the taxable income crosses Rs 5 lakh, you will have to pay tax on all your income above Rs 2,50,000 and you may also end up paying a penalty and interest for late payment of tax.

So, while declaring all your tax-saving investments and expenditures, make sure that you also declare all your income, else it would be better not to submit the investment declaration, and claim tax refund while filing income tax return (ITR).

Take, for example, Ajay (name changed) who is in a dilemma whether his taxable income would cross Rs 5 lakh or not, and is wondering whether to submit the investment declaration form to his employer or not. His current salary is Rs 40,000 per month (Rs 4,80,000 per annum) and he is uncertain about how much would be the increment during the year. Moreover his rental income, depending on occupancy period, varies between Rs 80,000 and Rs 1,20,000 per annum, which he doesn’t want to disclose to the employer. His tax-saving investment is Rs 1,50,000 per annum.

So, there is a fair chance that his taxable salary after increment and 80C deductions remains just below Rs 5 lakh and no tax is deducted. For example, his post-increment salary becomes Rs 5,80,000 and after 80C deduction of Rs 1,50,000, taxable salary becomes Rs 4,30,000. But after adding the rental income (say Rs 1 lakh), it may become taxable (Rs 5,30,000) and in that case he will have to pay tax on entire income over Rs 2,50,000 with late fee and interest.

Another scenario may be that he doesn’t declare 80C investments of Rs 1,50,000 and the salary becomes taxable (say Rs 5,25,000) without investment declaration and the employer deducts TDS, but after adding rental income (say Rs 1 lakh) and deducting 80C investments (Rs 1.5 lakh) it becomes tax free. In this case, he will get back the amount of tax deducted after filing the ITR.

Ajay, therefore, is in a dilemma, whether to submit investment declaration or not as he is unable to assess the taxable income due to uncertainty in increment that he may receive and his rental income is also variable and he doesn’t want to disclose it to his employer.

“It is not necessary for the employee to disclose all his incomes/deductions to the employer,” says CA Karan Batra, Founder & CEO of CharteredClub.com, adding, “If there is some information which has not been provided, the employee will have to himself compute the tax liability and pay the same to the government. Similarly, if the employee fails to furnish details of deductions, the employer will end up deducting higher TDS. However, the employee can claim this at the end of the year.”

However, a mismatch between Form 16 and ITR often results into an automatic issue of tax notice and to minimise this, a new format of Form 16 has been introduced, which will come into effect from May 12, 2019. But non-submission of investment declaration will result into a bmismatch between Form 16 and ITR.

Admitting that the Form 16 will not match with the ITR in such cases, Batra said, “If the Form 16 matches with the ITR, this makes it easier for the income tax dept to process the ITR. However, if it does not match, the income tax department may ask for additional information and documentary evidence in support of such information, which would be required, to be uploaded online on the income tax website.”

So, there is no problem if you don’t submit investment declaration and disclose income from any other sources, but you have to keep documentary proof of all such investments and incomes ready so that you may produce such documents if a tax notice is issued due to any mismatch in Form 16 and ITR.

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