Understanding income tax declarations and the entire process of taxation in India is important and helps you maximize your tax-saving opportunities. This blog will help you understand the basics of income tax declaration, why it is important, required documentation and how to minimize tax liabilities.
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An Income Tax Declaration is a document submitted by the employee to the employer. This document includes all the information about the total income and expenses of the employee. Section 192 of the Income Tax Act of 1961 mandates employers to deduct the tax at source (TDS) while paying salaries to their employees. All income and expenses such as gross income, and proof of tax-saving investments such as insurance and PF, among others, for the year should also be provided. Employers use this information in the tax declaration to understand, determine, and deduct the TDS applicable based on the monthly income of the employees. The taxation process begins with the declaration of income and ends with the filing of the Income Tax Return (ITR).
As mentioned earlier, the Income Tax Act, mandates the employers to deduct tax at the source based on their projected revenue and estimated expenses and investments for the financial year. In this way, the government allows the employees to claim certain expenses and investments to decrease their tax liability. The Union budget 2020 proposed a new tax regime with lower tax slabs but fewer exemptions and deductions. But employees still have the option to compare and choose between the old tax regime and the new tax regime according to their income and investments and tax liabilities to make the income tax declaration.
Form 12BB is a mandatory document that all salaried individuals need to submit in order to claim tax deductions for investments or expenses made during the financial year. This document should be submitted at the end of the year. This form includes details such as:
- Employee Name
- Employee Address
- Employee PAN
- Financial year
- Eligible expenses
- Eligible investments
- Login to income tax account portal through (www.incometaxindiaefiling.gov.in).
- From the tab named ‘Forms’, download the Form 12BB.
- Enter your basic details like your employee code, name, date of birth, etc.
- Fill in the necessary deductions such as house rent allowance, LTA and other deductions.
- Sign the form and submit it to your employer.
- Name & address of your landlord.
- PAN No. of your landlord if the total rent paid during the year is more than Rs.1 lakh.
- Monthly rent receipts or rental agreement.
Tickets for domestic travel and boarding pass in case of air journey.
- Loan certificate provided by the bank.
- A document declaring employees’ ownership in the property.
- Property possession certificate.
- Copy of the stamped deposit receipt paid during the current financial year.
- Copy of passbook clearly mentioning the PPF account.
- Copy of investment certificate in your name with date, investment amount, type etc.
- Premiums paid towards life insurance for self, spouse and/or children.
- Copy of the deposit receipt, or passbook.
- Copy of tuition fees receipt paid to educational institutions along with the type of payment (donation fees, capitation fees, sports fees, transport fees, uniform and stationery fees, etc.).
- Copy of deposit receipt (qualifying deposits are deposits over 5 years).
- Copy of the bank certificate mentioning the principal and the interest amount paid and the amount payable.
- Valid receipts for the donations under the name of the employee.
Following are the documents required for an IT declaration:
- Aadhar card
- PAN card
- Salary slips
- Form 16
- Tax-saving investment proofs
- Health insurance premium receipts
- Proofs of capital gains
- Bank statement for interest on a savings account
- Interest income statement for fixed deposits
- TDS certificates issued by banks and others
The basic purpose of a tax declaration is to calculate and provide the exact amount of income tax that an individual or company must pay to the government based on their total income, expenses and investments.
Once you have submitted your income tax declaration, it goes through the verification process, and your Income Tax Return is processed. After the procedure, you will receive a notice on your registered email address and mobile number.
The deadline for submitting the ITD is usually provided by the employer to the employee. However, employees are expected to submit proof of investment and expenses, which mostly falls between the months of January and February.
Income tax declaration is an essential aspect of every individual and requires attention to detail. Taxpayers can manage their tax liabilities while remaining in compliance with applicable laws by using smart tax planning strategies and investments. However, manually handling these forms and managing the details of each employee can be challenging for businesses. This is where HRM solutions, such as PayWheel, can be helpful. PayWheel can help simplify the compliance procedure with its various features, such as tax report generation, automatic calculations based on tax slabs, and assistance in Form 16 generation. And thereby can help you simplify the entire payroll management process.
