You may already be past due if your employer hasn't received the documentation you need to claim deductions and exemptions in accordance with certain provisions of the Income Tax Act.
Reetu | Mar 13, 2023 | Views
It’s already March: here are the Last-Minute Income Tax Saving Tips
You may already be past due if your employer hasn’t received the documentation you need to claim deductions and exemptions in accordance with certain provisions of the Income Tax Act.
The proof must typically be provided by employees to their employers by mid-January in order for the final tax deduction at source (TDS) to be adjusted in the salary for the final three months of the financial year.
If you’re still debating whether to provide the evidence because you believe it’s not a huge deal and you can still claim the deductions when you file your tax return, you might be in the wrong. Only when they are processed through your company may you claim certain deductions and exemptions.
To ensure that you receive all of the tax benefits for which you are qualified, it is crucial to provide your employer with the required documentation as soon as possible.
Even though your employer might not agree to your request for them to accept the proof right away, it might be wise to make an effort to persuade them, particularly if there are claims you might not be able to make directly.
Employees who miss the deadline for providing information about expenses or specific allowances to their employers may still claim those expenses or allowances when they file their tax returns.
It is crucial for the employee to make sure they have all the supporting documentation for the expenses they have incurred in case there are any tax proceedings where these claims may need to be supported.
But, “It will be difficult to claim some allowances, such as Leave Travel Allowance (LTA), where the onus for deduction of tax is on the employer on submission of proof by the employee,” says Suresh Surana, Founder, RSM India, a chartered accountancy firm.
LTA is the term for the payment provided by employers to cover the travel costs of workers who are on leave, whether they are accompanied by their families or not. It is provided as a tax-free annual benefit and is included in the employee’s Cost to Company (CTC), though it can also be claimed on a monthly basis.
Employees must submit a completed declaration form and documentation verification, such as tickets or boarding permits, in order to claim LTA. The LTA amount is taxable if an employee is unable to travel for whatever reason.
However, the government created the LTC Cash Voucher programme as an exception during the pandemic, when travel was prohibited. According to this plan, employees might, under certain restrictions, use the LTA to pay for other products and services.
Employers also have a significant role in claims involving House Rent Allowance (HRA), in addition to LTA. If the total rent paid over the preceding year exceeds Rs 1 lakh, employers must gather information such as the rent receipt that includes the landlord’s name, address, and PAN. Employers permit HRA claims after receiving all the necessary information.
The tax agency may request that employees provide documentation of HRA if it is not claimed through the company but rather at the time of submitting the return.
Employers are responsible for calculating their employees’ yearly taxable income and proportionately deducting the relevant TDS from their monthly salaries in accordance with section 192 of the Act.
Employers ask their employees to furnish information or make a declaration of their investments and expenses that are eligible for tax deductions at the beginning of the year in order to calculate the annual taxable income.
At this time, only a declaration has been made; it is anticipated that the employee will file the requisite paperwork later on in the calendar year. Employers must take into account this declaration and give employees access to the benefits of such investments and appropriate deductions.
But, the employee must show the employer proof that he is truly qualified for those deductions before the end of the financial year. For instance, if someone is claiming the PPF as a deduction under Section 80C of the Income Tax Act, he must exhibit the PPF passbook entry, according to Vivek Jalan, Partner at Tax Connect Consultancy, a multi-disciplinary tax consultation firm.
It will be assumed that the employee has not incurred these costs or made these investments if the employee fails to provide documentation of investments and expenses. According to Jalan, “the employer will recalculate the TDS for the year and deduct more TDS” in such circumstances.
As a result, throughout the remaining months in the financial year, the employer will deduct more TDS from the employee’s salary.
Employees are unaware of the implications of the proof they provide to their employers. It is a frequent misperception that these records are sent to the income tax department by the employer, but this is not the case.
“The proof or evidence obtained by the employer is normally not obliged to be presented to the income tax department, unless the authorities request the same,” according to Surana.
Employers, on the other hand, want these proofs to verify the claims made by their employees. After the employer is satisfied, TDS is deducted, and the employee’s claimed deductions and exemptions become part of the Form 16 provided by the employer.
Note, the employer is not compelled to provide any documentation to the tax agency unless specifically requested. That is, the income tax department is dependent on and agrees with the deductions and exemptions granted to employees by their employers. But what if the statements stated are false, and the proofs are fabricated?
“The primary obligation for establishing the veracity of the claim is with the employer, and the employer relies on the documentation given by the employees for this,” explains Neeraj Agarwala, Partner, Nangia Andersen India.
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