Last-minute tax saving tips: If you haven’t submitted supporting documents to your employer, there’s trouble

Tread carefully while making tax-saving investments before March 31

If you have not submitted the necessary proof to your employer to claim deductions and exemptions under various sections of the Income Tax Act, you may already be late.

Typically, employers require their employees to submit the proof by mid-January, so that the final tax deduction at source (TDS) can be adjusted in the salary of the last three months of the financial year.

If you are still contemplating whether or not to submit the proofs, thinking that it's not a big deal and you can claim the deductions while filing your tax return, you may be mistaken. Some deductions and exemptions can only be claimed if they are routed through your employer.

Therefore, it is essential to submit the necessary proof to your employer as soon as possible to ensure that you don't miss out on any tax benefits you are eligible for.

While your employer may not entertain your request to accept the proof now, still, it may be good to try and convince them, especially if there are claims you may not be able to claim directly.

Also read: Top five tax saving investments for last minute tax planning

LTA and HRA

If an employee fails to provide the necessary information regarding expenses or specified allowances to their employer within the given timeline, they may claim such eligible expenses or allowances while filing their tax returns.

It is important for the employee to ensure that they have all the documentary evidence of the incurred expenditure in case of any tax proceedings, where such claims may need to be substantiated.

However, “It would be difficult to claim some allowances, such as Leave Travel Allowance (LTA), where the onus for deduction of tax is on the employer on submission of proof by the employee,” says Suresh Surana, Founder, RSM India, a chartered accountancy firm.

LTA refers to the payment made by employers to cover travel expenses of employees who are on leave, with or without their families. It is a part of the employee's Cost to Company (CTC) and is given as a tax-free annual benefit, although it can be claimed on a monthly basis.

Also read | Budget 2023 | Old vs new tax regimes: Who should make the switch?

To claim LTA, employees must provide documentary proof, such as tickets or boarding passes, as well as a completed declaration form. If an employee is unable to travel for any reason, the LTA amount is subject to tax.

However, during the pandemic, when travel was restricted, the government introduced the LTC Cash Voucher scheme as an exception. Per this scheme, employees could use the LTA to purchase other goods and services, subject to certain conditions.

Besides LTA, even in case of claims related to House Rent Allowance (HRA), employers play an important role. Employers need to collect details like the rent receipt containing the name, address, and PAN of the landlord if the aggregate rent paid during the previous year exceeds Rs 1 lakh. Once all the information is provided, employers allow claims for HRA.

If HRA is not claimed through the employer but instead claimed at the time of filing the return, it may arouse suspicion and the tax department may ask employees to submit proof of the same.

Also read: The ultimate guide that helps you choose between new and old income-tax regime

Summiting the tax-saver investment proof

Under section 192 of the Act, it is the responsibility of employers to determine their employees' yearly taxable income and deduct the appropriate TDS from their monthly salaries in a proportionate manner.

To compute the yearly taxable income, employers require their employees to provide details or make a declaration of their investments and expenses that qualify for tax deductions at the beginning of the year.

At this point it is just a declaration that is made and it is expected that the employee will submit the supporting documents during the year. Employers are required to take this declaration into account and provide the benefit of such investments and applicable deductions to the employees.

“However, before the end of the financial year the employee must provide evidence to the employer that he is actually eligible for those deductions. For example, he must show the PPF passbook entry in case he is claiming the same as a deduction u/s 80C of the Income Tax Act,” says Vivek Jalan, Partner, Tax Connect Advisory, a multi-disciplinary tax consultancy firm.

If the employee does not submit proof of investments and expenses it will be deemed that the employee has not incurred these expenses nor made these investments. In such cases, “the employer will recalculate the TDS for the year and deduct additional TDS,” says Jalan.

As a result, the employer will deduct higher TDS from the salary for the remaining months of the financial year.

Deducting TDS after looking at facts

There is a lack of awareness among employees regarding the use of the proof submitted by them to their employers. It is a common misconception that the employer sends these documents to the income tax department, but that is not the case.

As stated by Surana, "The proof or evidence collected by the employer is generally not required to be submitted to the income tax department, unless the authorities request the same."

Instead, employers request these proofs to verify the claims made by their employees. Once the employer is satisfied, TDS is deducted accordingly, and the deductions and exemptions claimed by the employee become a part of the Form 16 issued by the employer.

Submit your investment proofs on time

Remember: the employer is not required to submit any proof to the tax department, until and unless specifically asked for. That means the income tax department depends on and agrees with the deductions and exemptions allowed to employees by the employer. But the question is, what if the claims made are fake and proofs are fabricated.

“The primary responsibility for verifying the authenticity of the claim is with the employer, and the employer relies on the documents submitted by the employees for this,” says Neeraj Agarwala, Partner, Nangia Andersen India.

However, “where an employee submits fake proof, the employer is not held liable. Further, even if the proof is accepted by the employer, there is still a chance that the employee will be required to resubmit the proof if their case is marked for scrutiny by the income tax department,” says Agarwala.

Where it is found that the proof submitted by the employee is fake and with the help of that the employee has claimed undue tax benefits, it can result in a huge penalty. “Employees providing incorrect details may be subjected to penalty under section 270A for under-reporting (@ 50 percent of the tax on such under-reported income) or mis-reporting (@ 200 percent of tax for such misreported income),” says Surana.