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How to Claim Deductions Not Accounted by the Employer

Form 16:Income Details

September 13th, 2012 by bemoneyaware

Have you failed to report some tax saving investment to your employer or did you make the investment after submitting your investment declaration to the employer. You can claim all the deductions/ exemptions while filing of Income Tax Return for the relevant financial year. This article will explain how with example and images.

Declaration of Investments for Tax Exemption/Deduction by Employee

The income tax act puts the responsibility on the employer to deduct tax at the time of payment of salary to the employees every month. The employer has to deposit the tax with the government before the seventh day of the following month. The TDS rules are very strict and the employer faces stringent penal provisions for non-deduction or non-deposition of tax. Employers also have to file the TDS returns at the end of every quarter of a financial year. So the employers asks employees for declaration of the their proposed investments for tax exemptions/deductions from employees in the beginning of the financial (April itself). This helps them to calculate the taxable income according to the investments proposed and deduct the tax accordingly. Some common exemptions/deductions are:

  • House rent and leave travel allowances are the common exemptions that can be claimed,
  • Investments in PPF, NSC, ELSS, life insurance premiums, home loan principal repayment etc are some under common deductions under 80C.
  • Interest on housing loan is deduction under Section 24.
  • Other deductions include medical insurance premium (section 80D), interest on education loan (section 80E), maintenance of disabled dependent (section 80DD), etc.

Thus, after you submit your tax saving investment proposals, the employer starts deducting taxes from your monthly salary.

Submission of Proof for Proposed Investments

By December or January employer asks for submission of the proofs for all proposed tax saving investments. Some employees fail to make the declaration, while some may give the details but fail to provide the relevant documentary proof within the time frame prescribed by the employer. What if employee

fails to invest the amounts (s)he had proposed in the declaration made in the beginning. Ex: employee declared he will invest 20,000 in PPF but does not invest by January or does not buy medical insurance proposed. Then employer needs to recalculate the tax liability and recover the shortfall in tax deducted from the salaries in the remaining months of the financial year.  This results in the increased tax liability and employee’s salary getting substantially reduced after paying it. As one month’s salary may not be sufficient for the employer to make up for the TDS shortfall, employer prefers to have two-three months in hand.

Employer issues Form 16 to his employees for each of the financial year (April to March of next year). Form 16 provides details of the salary income of the employee along with the Tax deducted at Source (TDS). What if the employee invests after the deadline for submission. Their might also be cases when employee invests more than proposed, in that case also recalculation of tax liability needs to be done which might not be sufficient to get adjusted in remaining months. This may result in extra deduction of taxes by employer. Then the employees can claim tax exemptions /deductions only while filing tax returns. Employee should then calculate the final tax liability, taking care of tax exemptions/deductions in accordance with the tax laws for that year. And If the total tax liability is less than the taxes paid or deducted during the year, they might even be eligible for a tax refund. In any case deduction of TDS and obtaining Form 16 does not sufficient.  One is required to file his/her return of income before the due date i.e. 31st July, incorporating other income in addition to salary income, and pay taxes or claim refunds, whatever the case may be. It is important to keep records of tax investments, in case if the employer does not deduct taxes or deducts extra taxes, and then these certificates can be use for claiming refunds.

 Example of Filling ITR-1 Form claiming the deductions

Category: Taxes

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