The last quarter of the financial year calls for revisiting your tax-saving investments. For an employee this comes in the form of reminders from one’s company to submit proofs of investments and expenses that are eligible for tax deductions. This can be a painful time for many, especially if the past nine months have flown by without making any tax-saving investments. It can also be a perplexing time if you feel like you’ve already submitted something similar at the beginning of the financial year. Why again, you might wonder. Let’s throw some light on this today. And let’s keep a little checklist ready so that going forward, you find this process simpler.
The Financial Year through the Income Tax Lens
April is when you submit details pertaining to tax-saving investments, house rent, home loan EMI amounts and the like for the upcoming financial year. It is your declaration to your employer – a commitment to yourself that you will be making these investments/expenses during the year. Based on your declarations, your employer will calculate the monthly tax (TDS) that should be deducted from your salary.
Now, I’m going to assume that you’ve been optimistic at the beginning of the year. You’ve committed to investing the maximum you can (eg: the full 1,50,000 under Section 80C). However, as the year rolls on and everyday life takes over, investing takes a backseat. And suddenly you’re already in January!
This is the time your employer will need proofs of investments you’ve made during the year. Proof that you have invested what you committed to nine months ago. Again, these proofs help the company calculate precisely how much TDS should be cut and deposited with the government against your PAN.
So how do we make this process less tedious (pun intended)?
Document Checklist for Tax Submission to Employer
1. Rent receipts [Section 10(13A)]
- Stamp-duty receipts are required when house rent has been paid in cash. For online transactions, you may submit your rent agreement along with rent receipts generated online. The latter is recommended.
- Your landlord’s PAN is required when rent exceeds Rs. 1 lakh for the year.
2. Leave Travel Allowance [Section 10(5)]
- This exemption can be claimed only if you receive this allowance as part of your salary.
- It can be claimed if you have taken leave from work and expenses have been incurred on travel – tickets need to be submitted.
- Only domestic travel is considered for LTA.
- Exemption is available for you as well as your family members. Family includes spouse, children (maximum 2 two children), and wholly dependent parents and siblings.
- Exemption can be claimed for two journeys in a block of four calendar years. The current block is 2022 to 2025.
- The amount of exemption will be lower of allowance received or amount spent on air/rail/bus fare to and fro. Accommodation, sightseeing and other travel expenses are not eligible.
3. Other Allowances
For other allowances that are part of your salary, bills need to be submitted to be eligible for the exemption. Examples of these allowances are books and periodicals allowance, phone and internet allowance.
4. House Property / Home Loan
An interest certificate from your bank will suffice. It will have the principal component as well as interest component mentioned. The former is eligible for exemption under Section 80C, and the latter under Section 24, part of the head, “House Property”.
5. Investments under Section 80C
This is the most common section for tax-saving investments and covers a whole bunch of investments. All these put together are limited to a total of Rs.1,50,000. There is always some hope that the finance minister will raise this limit someday soon. But until then, we can still make the most of it.
- ELSS (Equity Linked Saving Scheme) – The statement of your tax-saving mutual fund. You can get this directly from the fund house website / third party app you’ve chosen to invest through or even the CAMS portal.
- Life Insurance Premium receipt
- Public Provident Fund investment receipt
- Children’s School Fee receipts
- Others include 5-Year Fixed Deposit, Unit-Linked Insurance Premium, National Saving Certificate, Senior Citizen’s Saving Scheme, Sukanya Samriddhi Yojana, and Post Office Tax-Saving Scheme.
6. National Pension Scheme [Section 80CCD(1B)]
This statement is available on the NPS portal. This section allows for a maximum deduction of Rs.50,000 for the year.
7. Health Insurance (Mediclaim) [Section 80D]
The premium receipt will suffice to claim health insurance as a tax benefit.*
8. Education Loan [Section 80E]
Interest statement from the bank. Only the interest component is eligible for a tax deduction.
9. Electric Vehicle Loan [Section 80EEB]
Interest statement from the bank. Only the interest component is eligible for a tax deduction.
10. Disability [Section 80DD, 80DDB, 80U]
This is for persons with severe disabilities (eg, physically handicapped, leprosy, mental illness). You will need a medical certificate to claim this deduction.*
*In the coming weeks, we will be sharing a detailed article on the medical-related sections.
Where are you at?
It is a well-known fact that the months from January to March nudge people to make tax-saving investments more than any other months in the year. But it isn’t wise to leave this for the last minute. What is worse is missing the bus altogether and having a huge TDS cut from your salary during this period simply because you forgot to invest, or were confused about where to invest. Don’t let this happen. Review your taxes and investments. Use the checklist. And reach out to me if you need any help whatsoever.