Taxation

A detailed guide to Investment Declaration Form

There are instances when an employee gets confused as to what needs to be mentioned in the Investment Declaration Form in order to claim deductions and exemptions. It must be noted that the Investment Declaration Form will be submitted to the employer and not the Income Tax Department^[1].   

What is an Investment Declaration Form?

An Investment Declaration Form can be defined as a provisional statement of claims that is submitted by the employee to his employer. The form contains details about the proposed investments and expenses that are income tax deductible to claim tax deductions and exemptions on the salary depending on the salary structure of the employee. This form is very important because the employer uses this form to calculate TDS based on the employee’s salary.

The employee needs to submit the supporting investment proofs of the proposed investments specified in the declaration form. Such investment proofs can be in the form of health insurance receipt, receipt of donation, investments in tax saving mutual funds, insurance premiums.

This form can be submitted after the commencement of the financial year till 3 months prior to the closing of the financial year. It is submitted via Form 12BB.

Important things to be mentioned in the Investment Declaration Form

Here is the list of few things that an employee must mention in his/ her investment declaration form.

• House Rent Allowance: An employee can fill the details of the House Rent Allowance (HRA) in order to claim tax deductions on HRA. HRA is part of the salary structure that is received towards the rent that needs is paid for the purpose of accommodation. A portion of such HRA is allowed as deduction under section 10(3) of the Income Tax Act.

For an employee to claim deductions under HRA, following details need to be provided:

1. Name and address of the landlord along with the actual rent paid.
2. PAN or Aadhaar Number of the Landlord
3. In case the rent paid exceeds the amount of Rupees 1 lakh, then the employee need to provide pan card details of the landlord.

• Leave Travel Concessions or assistance: A salaried employee receives a leave travel concession or assistance from the employer based upon the salary package of the employee. This concession is restricted to the domestic purpose only.

If a salaried employee wants to claim deductions under Leave Travel Concessions or Allowance, then the employee needs to furnish the leave related expenditure proofs to the employer.

The total amount of the expenditure along with the related documents needs to be mentioned in the form 12BB by the employee.

• Interest on Home Loans: For an employee to claim deductions on the interest paid on home loans, they need to provide details like

1. interest paid/payable to the lender
2. Name, address and PAN/ Aadhaar card number of the lender

• Deductions can also be claimed under the following heads of Chapter IV-A:

A. Deductions sought under Sections 80C, 80CCC and 80CCD

1. 80C: Under Section 80C, an employee can claim deductions on the premiums paid for the life insurance and/ or investments to be made in the PPF, NPS, ELSS funds and/ or school tution fees for children etc.
2. 80CCC:  Premiums paid by the employers for the annuity plan.
3. 80CCD: Additional Contributions made by the employee in the National Pension Scheme.

B. Deductions sought under Sections like 80E, 80G, 80TTA etc.

1. 80D: premiums paid by the employee for medical insurance
2. 80E: interest paid by the employee on education loan.
3. 80G: donations made by the employee to the specified organisations
4. 80TTA: Interest income earned by the employee from the savings account

What if the employee fails to submit Investment Declaration Form?

It is very normal of employees failing to submit the Investment Declaration Form to their respective employers. If an employee fails to submit the Investment Declaration Form to the employer, then the employee shall not be able to avail the benefits of deductions under the above mentioned various categories. Consequently, the employee shall be liable to pay full Tax Deducted at Source and also the employer not having the required information of the possible expenses from the employee’s end will be forced to deduct TDS on the gross salary of the employee. This may result in employer deducting an exorbitantly high TDS where it was supposed to be less in amount.

Remedies available with Employee in case of failure to submit Investment Declaration Form

 There is nothing to be worried about if an employee fails to submit the Investment Declaration Form to the employer despite greater deduction of TDS. The employee can always claim a refund of excess amount of TDS deducted by the employer at the time of filing Income Tax Returns. The employee at the time of filing ITR can disclose his/ her actual investments, deductions and expenses before the due date of filing of ITR.

However, this process is very time taking and cumbersome since the excess amount of TDS deducted by the employer due to failure to submit Investment Declaration Forms shall be refunded only at the time of filing of ITR in the next year. Therefore, it is always advised an employee must always submit his/ her Investment Declaration Form within time. 

Read our Article:Understanding the Difference between TDS and TCS