Tax Time of the Year

It’s that time of the year when your company’s accounts department knocks on your door to submit your income-tax saving proofs. The taxes deducted at source (TDS) are covered under Section 192 of the Income-tax Act, 1961 making it the obligation of the employer to withhold taxes at the time of payment of salaries. The last date for such submissions varies, but most organisations would expect you to submit them by March 10, 2021. So, here are the points you need to keep in mind before you submit your investment proofs.

Don’t wait till the last date

Employers start asking for investment proofs in January itself as they would like to start deducting tax at source on the basis of tax calculations based on actual investments from January. If taxes have been deducted in excess or less, accordingly, they will get deducted in the last 3 months of the FY. So, do not wait till March as then there won’t be any scope for finalising and one could see a huge tax burden in that month and less take-home pay. 

Tax Regimes

In FY 2020-21, an individual salaried person has an option to choose between the new tax regime and old or existing tax regime. If you opted for the new tax regime, then you are not required to submit any document or investment proofs to the employer. However, if you have opted for an old or existing tax regime, then investment proofs must be submitted before the deadline specified by your employer to avoid higher taxes.

NPS Contribution

If you are opting for the new tax regime do keep in mind that the contribution to your NPS account by your employer has been taken into account while computing taxes on your salary. Deduction under section 80CCD (2) of the Income-tax Act is available under both the tax regimes.

Not in the tax bracket last FY?

For FY 2020-21 there is no tax payable if your taxable income does not exceed Rs 5 lakh in both the tax regimes. Therefore, if no tax has been deducted by your employer till now, on the basis of investment declaration, then it is more important to submit tax-saving proofs so that excess TDS is not cut.

Important tax-saving investment/expenditure proofs include:

  • Investments – Under Section 80C
Equity Linked Savings Schemes (ELSS)ELSS fund statement of mutual funds (MFs)
Life insurance premiumPremium receipts
Public Provident Fund (PPF)Photocopies of the passbook/ e-receipt
Sukanya Samriddhi Scheme Deposit receipt or a certificate from the bank
5-year Fixed DepositDeposit receipt or a certificate from the bank
  • Tuition fees

In case of tuition fees, submit photocopies of the school receipt carrying the schools’ seal and signature of the receiver

  • Tax-saving on affordable house

In the Budget announced in July 2019, an additional deduction on interest paid on the affordable house was introduced. An individual can avail the deduction of up to Rs 1.5 lakh on the interest paid. This will translate to tax -savings on interest paid on housing loans for maximum up to Rs 3.5 lakh.

There are certain criteria one must satisfy in order to avail the tax-benefit which are as follows:

a) Loan must be sanctioned by a financial institution during FY 2020-21, i.e., between April 1, 2020, and March 31, 2021.

b) The stamp value duty of the house should not exceed Rs 45 lakh.

c) Individuals should not own any other house property on the date of sanction of loan.

d) An individual should not be eligible to claim deduction under section 80EE .

  • First-time home buyers

For loans sanctioned between 01.04.2016 to 31.03.2017, Section 80EE allowed tax benefits for first-time homebuyers under which the benefit can be claimed on home loan interest. This deduction is over and above the Rs 2 lakh limit under Section 24 of the Income-tax Act. 

Hard copies of all the relevant documents have to be submitted. The deduction is allowed up to Rs 50,000 per year starting from FY 2016-17 and subsequent years until the loan is repaid.

  • House Rent Allowance (HRA) Exemption

If the rent payment is less more than Rs 1 lakh per annum, you will require the following proofs:

  1. Permanent Account Number (PAN) of the landlord
  2. Ownership proof of landlord of rented premises (house tax receipt or the latest electricity bill)
  3. Original rent receipts for the period of April 2020 till date have to be provided.
  • Housing loan repayment (principal)

The certificate from a financial institution specifying the principal paid during April 2019 to March 2020 needs to be submitted. Ask the institution to mention the provisional amount for the last 2-3 months of the current financial year as equated monthly instalments (EMIs) would still be pending.

  • Loss from housing property – interest on housing loan – self occupied

The interest certificate from the bank or financial institution, specifying the break-up of interest and the principal amount for FY 2020-21 would be required. Possession/construction completion certificate is a must for availing the relief by some employers. Further, the date of the loan taken and the date of possession is mandatory to avail the benefit.

  • Loss from housing property – interest on housing loan – let out on rent

If the house for which loan has been availed is let out, the same should be submitted with a certificate from a financial institution specifying principal and interest paid during April 2020 to March 2021 (FY 2020-21).

  • New Pension System (NPS)

If you have opted for the investment of Rs 50,000 under NPS on your own, i.e., outside salary, then submission of copies of PRAN card, NPS Transaction Statement for Tier 1 Account is necessary .

  • Mediclaim premium

Call up the insurer and ask him to send the statement for tax purposes under Section 80D. 

Note:The premium should not be paid by cash and should be paid by cheque or digital transfer from the bank account.

Bonus: We have made a detailed video on How to find the BEST Health Insurance Policy.  Click here to watch the video.

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