Every year, employees must furnish investment proofs to their employers to avail of tax deductions and lower Tax Deducted at Source (TDS). This is done at the beginning of the financial year and these declarations often exempt the employee from TDS for the first three quarters of the financial year.
However, the final quarter of the financial year, January to March, is crucial. It is during these months that employees are required to provide relevant proofs of their investments to their employers. if the employee fails to provide these proofs within the stipulated time, higher taxes will be withheld on their salary. However, generally there is some leeway for investments made in February or March as employers tend to provide a second window to accommodate these.
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The calculation of TDS for the months leading up to February relies on the investment declarations made by the employee. However, for the month of March, TDS is computed based on the investment proofs submitted and approved by the employer. Failing to furnish these proofs can result in a higher TDS deduction, as expenses made after March 31 are not deemed eligible for tax deductions for the ongoing fiscal year.
What to do if you have missed the investment submission deadline? In case investment proofs are not submitted on time employees have the option to make eligible investments before March 31st of the financial year and incorporate eligible deductions directly into their income tax return filed before July 31st, seeking a refund for any surplus TDS deducted by the employer due to the non-submission of investment proof. Notably, an exception applies to leave travel allowance, as its deduction is solely managed by the employer. Yet, choosing to bypass submission to the employer and directly claiming deductions in the income tax return heightens the probability of a tax query from the income tax department. In such instances, employees must submit all relevant proofs directly to the income tax department.
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The responsibility falls primarily on the employer to deduct taxes and deposit them with the government. Even if an employee submits a statement expressing their intention to submit proofs at a later date, the employer is obliged to deduct TDS based on declarations submitted during the first quarters of the financial year. This obligation is independent of the future submission of investment proofs by the employee.
While at the beginning of the financial year, an employee provides a bare declaration of deductions they are anticipating, by the fiscal year's end, the employee must furnish investment proofs validating these deductions. In case the proofs are not submitted on time, employees have the choice to incorporate these deductions into their income tax returns for tax refund. However, this may invite scrutiny from the income tax department in the eventuality of a tax query.