As the financial year progresses, employers are reminding their employees to submit proofs of tax-saving investments and expenditures. This submission is crucial for employees who have opted for the old tax regime, as it allows them to benefit from various exemptions and deductions, thereby reducing their taxable income and ensuring accurate Tax Deducted at Source (TDS) on their salaries.
Old vs. New Tax Regime:
- Old Tax Regime: Employees choosing this regime can avail themselves of multiple exemptions and deductions, such as House Rent Allowance (HRA), deductions under Section 80C (investments in instruments like Public Provident Fund, Life Insurance Premiums, etc.), Section 80D (medical insurance premiums), and interest on housing loans. To benefit from these, employees must submit the necessary proofs to their employers.
- New Tax Regime: Introduced to simplify taxation, this regime offers lower tax rates but removes most exemptions and deductions. Employees opting for the new tax regime are not required to submit investment proofs, as these tax-saving avenues are largely unavailable under this system.
Importance of Timely Submission:
Employers typically set deadlines, often by March, for the submission of investment proofs. Delaying this submission can lead to the employer deducting higher TDS from the employee’s salary, as they would compute tax liability without considering potential deductions. To avoid a sudden increase in TDS and ensure accurate tax computation, employees are advised to submit their proofs promptly.
Common Documents for Submission:
- Section 80C Investments: Receipts for contributions to Provident Fund, Life Insurance Premiums, Equity-Linked Savings Schemes, National Savings Certificates, etc.
- Section 80D Deductions: Medical insurance premium payment receipts.
- House Rent Allowance (HRA): Rent receipts or rental agreements.
- Home Loan Interest: Interest certificates from financial institutions detailing the interest paid on housing loans.
Consequences of Non-Submission:
Failure to provide the necessary proofs results in the employer deducting TDS based on the gross salary without accounting for eligible deductions. While employees can claim these deductions when filing their income tax returns, non-submission leads to higher monthly TDS, affecting take-home pay and potentially causing cash flow issues.
Expert Advice:
Tax professionals emphasize the importance of understanding the chosen tax regime and its implications. Employees under the old tax regime should meticulously compile and submit their investment proofs to benefit from available deductions. Conversely, those under the new tax regime should be aware that such submissions are unnecessary due to the absence of deductions.
Conclusion:
To ensure accurate TDS deductions and maximize take-home salary, employees should promptly submit all relevant investment and expenditure proofs to their employers, aligning with the chosen tax regime’s requirements. This proactive approach facilitates efficient tax planning and compliance.