For arriving at this component, employers every year demand a declaration with respect of investment that the employee intends to invest in the particular financial year. And depending on the investment made tax rebates are offered u/s 80C or 80D. The declaration in this respect is further cross-checked by the employer who demands proof in lieu of investment made in December or January of a given financial year.
For instance: A declaration of investment of an amount of Rs. 50,000 in LIC, Rs. 10,000 in tax saving mutual funds, Rs. 10,000 towards health insurance premium and Rs. 25,000 as home loan prepayment will be factored in by the employer to provide relevant tax deductions and consequently decide on the TDS amount.
Proofs to be submitted for different investments
For Mutual Fund Investments through SIP: Provide latest statement for the investment made.
For Home Loan: Provide a copy of the repayment statement. In case of non-receipt of the same insist the bank to provide it to you.
For Investment in Insurance: Tender receipts
For Claiming HRA: Provide receipt foil for the home rent paid.
Further, ensure investment made and investment to be made are enlisted properly. Else, you want be able to avail the correct tax rebate and an higher amount will be deducted from your salary. However, in case you encounter any error in time and report it to the persons concerned chances of relevant adjustments being made in the next salary are high.
Also, a recourse is available in case you forget to mention any particular investment in a year as the same can be claimed back and obtained as refund after filing the tax return. Also, regardless of the declaration made in case of surplus investible cash, you can consider investment and claim deduction on it as tax refund.
But, do remember investment in any instrument or asset should solely not be guided by the tax advantage and rather serve some personal goal of yours.
Points to note:
To claim deduction in entirety and ensuring higher relevant tax breaks, ensure submission of all proofs. Health insurance receipt should be provided separately for claim u/s 80D.
In case the declaration amount is higher than actual investment made, same will be accounted for by the employer and relevant deductions will be made in the next due salary for the FY.
If declaration amount equals investment amount, tax liability as computed by the employer shall remain the same provided there is no other source of income.
For income other than salary income, tax can be paid to the government directly using Challan 280 and it can be shown while filing the return.
In the case, when declaration amount is less than actual investment amount in a particular FY, you can claim tax refund as you had been higher tax as TDS.