TDS on Salary – Essential Documents Employees Must Submit by March 31

1.1 House Rent Allowance

HRA is a component of salary designed to assist employees in meeting their rental expenses. To claim HRA exemption, employees must provide rent receipts and rental agreements as proof of their accommodation expenses. Additionally, if the annual rent paid surpasses Rs 1 lakh, it’s mandatory to furnish the PAN of the landlord. HRA exemption is subject to certain conditions and limits outlined under the Income-tax Act, 1961.

1.2 Leave Travel Concession

LTC is a valuable employee benefit that not only encourages employees to take vacations but also provides tax benefits for their travel expenses within India. Under section 10(5), LTC expenses are exempt from tax upto a certain limit. To claim LTC exemption, employees are required to submit documentary evidence including travel tickets, boarding passes, hotel bills, and other supporting documents, as proof of their travel expenses.

1.3 Health Insurance

Section 80D allows individuals to claim deductions for health insurance premiums paid. Employees can avail this deduction for premiums paid towards health insurance policies for themselves, their spouse, dependent children, and parents. They must provide premium receipts as evidence to claim deductions under Section 80D.

1.4 Home loan

Employees can avail various tax benefits on home loans. Firstly, under Section 24, they can claim deductions on the interest paid on home loans, up to Rs. 2 lakh for self-occupied properties and without any limit for let-out properties. Under Section 80C, they can claim deductions on the principal repayment, capped at Rs. 1.5 lakh annually. To avail these deductions, employees need to submit documents such as interest certificates, loan agreements, and repayment certificates provided by the lender to their employer.

1.5 Section 80C

Under Section 80C employees are eligible to claim deductions on specified investments and expenses, thereby reducing their taxable income. The total amount of deduction is capped at Rs. 1.5 lakh per financial year, irrespective of the number of investments made or expenses incurred. Some of the deductions available under this Section include the following:

1.6 Donations

If donations are made to approved institutions under Section 80G or are made to political parties under Section 80GGC, then the receipts or acknowledgments from such institution or political party can be submitted as documentary evidence.

Typically, the proposed declaration made by an individual helps in avoiding TDS deductions until the first three quarters of the financial year, which extends until December. It’s important to note that the deductions from taxable income from January onwards are determined based on the actual investments and expenses provided in the proof submitted by the employees. If an employee fails to furnish the actual evidence, the employer will not factor in these deductions when calculating the tax liability. Consequently, this may lead to higher TDS deductions, resulting in a lower net salary for the month of March.

If the deadline for submitting investment declarations or documents is missed, the employer will deduct extra TDS when paying the salary. To retrieve this excess amount, the individual must claim an income tax refund during the filing of the income tax return. Nonetheless, specific deductions such as tax exemptions for Leave Travel Allowance (LTA), become forfeited and cannot be individually claimed during the income tax return filing process. These allowances must solely be claimed through the employer. Therefore, it’s advisable to promptly provide all documents to the employer to prevent any unnecessary TDS deductions.

The new tax regime that was introduced in Budget 2020 which is now the default tax regime via Budget 2023 contains different tax slabs whereby the taxpayers are offered concessional rates of tax under section 115BAC. If an employee fails to respond to the employer, TDS on salary will be deducted based on the default new tax regime. Unlike the old regime, the new regime provides only two deductions for salaried employees: a standard deduction of Rs 50,000 under section 16 and deduction under Section 80CCD(2). Whereas no documentation is required to claim the standard deduction, Section 80CCD(2) applies to the employer’s contribution to the employee’s NPS account, usually requiring no additional documents for employers as investment proof.