Investment Declaration by Salaried Taxpayers

Your employer has the legal responsibility of deducting the correct amount of income tax (TDS) from the employees’ salary and remit the same to the Government account. For that, the employer asks an employee to submit the details of tax-saving investments and corresponding deductions. In practice, this TDS is deducted at a fixed amount for the most part of the year. But in the last quarter, the employer tries to match the correct amount of yearly TDS by reducing or increasing TDS deductions based on an estimation of final TDS for the year.

This final TDS amount is computed by the employer after considering the employee’s salary income, other incomes reported by her, and tax-saving investments and deductions reported so by an employee.

What is Investment Declaration Form?
This is a self–declaration of estimated tax liability submitted by an employee to an employer so as to enable the latter to deduct the correct amount of TDS. The particulars to be submitted and the format of such submission is prescribed in Income-tax Rules and Form 12BB. However, the employers do modify this Form 12BB to suit requirements from their organization. This form needs to be signed and submitted by an employee with a declaration that all the details submitted are correct. Further, these details need to be accompanied by supporting documents wherever necessary.

The standard form 12BB looks like this:

Why Should You Submit Investment Declaration?
Only the correct amount of tax should be deducted. In order to do that, an employer must be aware of your incomes other than salary income and tax-saving investments. Based on this, an employer computes your tax payable and then spreads it over a period of 12 months so as to deduct monthly TDS from your monthly salary.

If you do not submit this investment declaration, then the employer will deduct TDS as per his computation and often it results in a TDS deduction more than your actual liability. This excess TDS, you have to claim as an income tax refund in your ITR and you get the refund after your ITR is processed. This means you have lost six to seven months on your legitimate cash flow. This can be avoided by providing the employer with the correct Investment Declaration.

Particulars to be submitted:

  1. Any other incomes: During the year if you have earned income from interest, dividend, capital gains or professional fees or gifts etc must be intimated to the employer. Such incomes are often accompanied by TDS thereon and that TDS must also be informed.
  2. Salary Income from former employer: During the year, if you were employed with other employers, then details of salary income from that employer with professional tax paid, TDS paid etc. must also be informed.
  3. House Rent Allowance (HRA): If you are receiving HRA from your employer, the taxable portion of this HRA needs to be worked out. For that, you need to submit the amount of rent paid, the name, and the address of the landlord. If the rent paid is more than ₹1,00,000/-, then you need to submit the PAN of the landlord. In supporting documents, you also need to submit rent paid receipts from the landlord to the employer.
  4. Leave Travel Concession (LTC) or Assistance (LTA): If you are receiving the LTC or LTA for the block year 2018-2021, then this year (FY 2020-21), you can claim the tax exemption without having to travel or go on vacation. What you have to do is submit details of expenses done by you. Such expenses must be of the GST liable goods and services which are paid through non-cash mode. This scheme is explained in detail here. As proof of the same, you have to submit the bills and vouchers for such expenses done by you.
  5. Home loan interest details: If you have a house that is financed through a home loan, then you need to provide the home loan interest certificate to the employer. In case the house is self–occupied, you do not need to give anything else than this. However, if the house property is let out, then please provide the details of the rental income received.
  6. Tax Saving deductions: This is very important. Everybody makes certain investments like term insurance, ELSS, health insurance, deposits, etc., and also certain expenses like school fees, etc. These investments and expenses are tax-deductible. Therefore, the details of such expenses need to be provided to the employer. You must also submit the relevant documents with this to support your claims. The main deductions/investments are as below:
Deduction u/s 80C (Maximum Amount Upto Rs.150000/-)
1 Life Insurance Premium(LIC)
2 Provident Fund
3 Public provident Fund
4 NSC
5 Unit Linked Insurance Plan
6 Equity Linked Saving Scheme (ELSS)
7 School Tuition Fees
8 Principal Repayment of Housing Loan
9 Stamp duty and related expenses while buying house
10 Bank Term Deposits
11 Senior Citizens Savings Scheme
12 Sukanya Samriddhi Yojana
Deduction u/s 80CCC
13 Contribution to certain pension funds
Deduction u/s 80CCD (1)
14 Contribution to New Pension Scheme (NPS)
15 Medical Insurance
16 Medical Insurance for parents
17 Preventive Health Check up expenses
18 Interest on loan taken for higher education
19 Savings Bank account interest