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What is Tax Declaration Form? - Process to File Income Tax Declaration

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What is Tax Declaration Form? - Process to File Income Tax Declaration
September 27, 2024

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At the beginning of every financial year, employers seek an investment declaration from their salaried employees. A tax file declaration is basically a list of all the tax-saving investments that an employee proposes to make during that year. Even if he or she does not commit to all of these declarations, the employer should be intimated about them.

The reason why employers request this information is to ascertain the tax liability of their employees. This is calculated based on the deductions that are made through Section 80C of the Income Tax Act, home loans, medical bills and HRA. Collecting these details at the beginning of the year makes it easier for the employer to deduct Tax at Source (TDS) every month. TDS is covered under Section 192 of the Income Tax Act, 1961, making it the obligation of employers to withhold taxes while paying salaries.

It is natural for employees to tense up at the thought of declaring their investments since they're doubtful if they would be able to fulfil them or not. The important thing to keep in mind is that employees must invest the total money declared in the permitted investments, irrespective of where they're investing. For the employee, the higher the amount of investment, the higher will be the in-hand salary each month since the tax deduction will be low.

Understanding with an example

Adhiresh is an employee at a multinational company. At the beginning of the financial year, he quoted an amount of INR 70,000 as the investments he'd make in tax saving mutual funds. In addition to this, he would invest another INR 30,000 in an life insurance policy. As per this information, the employer will deduct an amount of INR 1 lakh from Adhiresh's annual income and calculate the taxable income on the rest of the amount.

TDS is calculated by dividing this amount by 12 and deducting the same amount, every month from Adhiresh's salary.

What is Form 12BB?

A salaried employee is required to submit the Form 12BB to his or her employer to claim tax benefits or rebate on investments and expenses. Form 12BB has to be submitted generally at the end of the financial year.

Declaring Investments

The investment declaration at the start of the year is only a roadmap of the amount you wish to invest during the year. During December or January, your employer shall request you to submit documents as proof of these investments which stated in the investment declaration at the start of the year.

Investment declaration can be made for the following investments:

  1. Home loan interest:

    Your home loan might be incurring a significant amount of interest every year. Apart from declaring in Form 12BB the name, address and PAN of the lender, you may be required to submit the provisional interest certificate that specifies the principal amount for the year and break-up of interest on provisional basis. This provisional interest certificate has to be obtained from the lending bank or financial institution.

  2. House rent allowance:

    You can claim the house rent payable to the landlord. The only details required are the owner's name, address and PAN.

  3. Leave travel concession or allowance:

    You can claim this amount only if it is included in your salary package.

  4. Mediclaim premium:

    The premium you pay towards health insurance qualifies for tax benefits under Section 80D of the Income Tax Act. Make sure you declare the premium amount in your tax declaration.

  5. Deductions under:

  1. Section 80C- Premiums paid towards a life insurance policy or investments made in tax saving mutual funds may be claimed as a deduction.
  2. Section 80CCD- It includes the amounts paid towards NPS.
  3. Section 80E - Interest paid on education loan.
  4. Section80G: Donations made to Government/specified organisations (mostly NGOs).

The amount declared by you in your investment declaration at the beginning of the year should match the amount invested at the end of the year.

In case you miss your deadline to declare your investments, even by a few days, your employer might over-calculate your tax liability and deduct the extra tax due from your salary for the following month. Even if you happen to pay extra tax, your ITR can take care of it. But, make sure you mention your investments in your income tax slab rates.

Spend some time on designing a well-planned strategy that will help you make the investments required without disturbing your cash flow. Investment plans that involve monthly payments relieve you of financial burden, especially at the end of the year.

How employers can verify supporting documents?

You need to fill and submit your tax declaration form before the TDS amount is deducted from your salary. To avail tax deduction through Form 12BB, you can follow these steps:

  1. Login to your income tax account on the portal (www.incometaxindiaefiling.gov.in).
  2. In the tab named 'Forms', locate Form 12BB and download the same.
  3. Begin filling up the form by entering your basic details like your employee code, employee name, date of birth, etc.
  4. Now, fill the columns of house rent allowance, LTA and other deductions.
  5. In the end, sign the form and submit it to your employer.
  6. Make sure you keep a copy of the form with you for future reference.

While you fill up your tax declaration form, several scenarios can arise, such as -

  1. When the amount invested is less than the amount declared by the employee:

    If you have been unable to invest the specific amount that you had declared at the start of the financial year, or if you do not furnish the documents to your employer, your tax saving will be assumed as inaccurate. In such cases, your employer will have to recalculate your tax liability before the financial year ends. If you make an investment after a date prescribed by your employer for submission of investment proofs, you should declare and claim it while filing your tax return. If eligible, you could also request for a refund of TDS.

  2. When the amount invested is equal to the amount declared by the employee:

    Your employer calculates your taxable income based on the amount that you declared as an investment. If the amount declared at the start of the financial year is equal to the amount invested by you, then you probably will not be eligible to claim any tax refund.

  3. When the amount invested is more than the amount declared by the employee:

    There are certain instances in which you may declare a certain amount as your investment at the beginning of the financial year but end up investing more. If the additional investments made by you qualifies for a additional tax deduction, in such cases, you could save more tax and can file your tax return to enjoy the refund.

Make sure you file your returns on time and make considerable investments. Moreover, make it a point to submit your tax file declaration to save your hard-earned salary from any unexpected deductions.

FAQs on Tax Declaration

Q: Who is eligible for tax declaration?

When an individual's income is above the basic exemption level in India, they have to file an Income Tax Return (ITR). The basic exemption limit varies according to age and the income tax regime. In addition, irrespective of income, anybody with certain financial transactions, such as overseas trips exceeding Rs. 2 lakh, utility bills over Rs. 1 lakh, or has deposited an aggregate amount exceeding Rs. 1 crore in bank accounts, must file an ITR. 

Q: How do I get my income tax declaration?

Generally, you must file an income tax return to get your income tax declaration. The Income Tax Department's e-filing site (https://eportal.incometax.gov.in) allows you to accomplish this electronically. Make an account, enter the required information about your income, and file the return. You may view your tax declaration in your e-filing account once it has been processed.

Q: What is a declaration form in tax?

Usually, at the start of a fiscal year, salaried workers provide their employers with a tax declaration form. It describes the annual tax-saving investments that the employee intends to undertake. The employer can more precisely determine the right amount of Tax Deducted at Source (TDS) from the employee's pay with the use of this information. This declaration's primary goal is to give an estimate of the employee's annual tax burden, even if specific forms may differ.

Q: How much income is tax-free?

The amount of income exempt from taxes in India is determined by age and the tax system selected. Under the old tax regime, basic exemption for people under 60 up to Rs. 2.5 lakhs, for people between 60 and 80 is up to Rs. 3 lakhs, and people beyond 80 up to Rs. 5 lakhs. Under the new tax regime, for all age categories, there is a flat basic tax exemption limit of Rs. 3 lakhs. Furthermore, under the new regime, anybody earning up to Rs. 7 lakhs is eligible for a tax rebate, which practically makes their income tax-free.

Q: What happens if a tax declaration is not done?

There are serious repercussions for not filing taxes. Penalties, interest on overdue taxes, and other legal problems might befall you. Moreover, on failure to file ITR, tax losses, if any, will not be allowed to be carried forward. A spotless tax history is also frequently necessary to be approved for loans, investments, and other financial activities. Even if you don't owe any taxes, you must complete your tax return on time to prevent these issues.

Q: What is the purpose of the declaration form?

A declaration form is a formal document that is used to confirm that information given by a person or organisation is true and accurate. It acts as a formal declaration, frequently given under oath or threat of perjury, confirming the accuracy of the information provided. The exact goal varies according to the situation, but in general, it's to prove eligibility, trustworthiness, or conformity with regulations.

Q: What types of payments or investments qualify for deductions under Section 80C of the Income Tax Act?

Under Section 80C of the Income Tax Act, you can claim deductions for premiums paid towards life insurance policies, as well as investments made in tax-saving instruments like mutual funds. These deductions help reduce your taxable income, offering significant tax-saving opportunities

References

Related Article:

Calculate Income Tax Here

ARN: ED/09/24/15371

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Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.

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Note - Tax benefits & exemptions are subject to conditions of the Income Tax Act, 1961 and its provisions. Tax Laws are subject to change from time to time. Customer is requested to seek tax advice from his Chartered Accountant or personal tax advisor with respect to his personal tax liabilities under the Income-tax law.

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