Investment declaration guide: Dos and don'ts and key things to know

Tax season has arrived, with the ongoing financial year 2023-24 (FY24) approaching its end in March. Employees around the organisations will be required to submit proof of their investments to their respective companies for better financial management and to be able to claim various tax benefits.

Investment declaration refers to the formal disclosure made by an individual or organisation regarding their investment portfolio, holdings, or financial assets.

Why are investment declarations important?

Under the old tax regime of India's Income Tax Act of 1961, one can claim tax benefits on various allowances such as house rent, leave travel concessions, food, and conveyance, among other things, based on their salary package if they fall within the taxable income bracket.

According to the taxation laws of India, the effective tax-free income under the old tax regime stands at Rs 5.5 lakh, and at Rs 7.5 lakh under the new tax regime, inclusive of standard deduction.

Proof of investment

Saving tax requires proper financial planning of your salary structure and other income sources. While filling up the investment declaration, the proof of investment is mandatory. If your investments are not supported by proof, they won't be considered by the employer while computing your tax liability. An employee does not need to submit proof of provident fund deduction.

Under the taxation rules, the employers are mandated to deduct TDS (tax deducted at source) from every employee's net income in case the declaration is not provided, financial services company HDFC explains. After receiving the declaration, the employer will take into consideration the proposed tax savings deductions from the employee's salary before calculating the tax to be deducted at source," it says.

How to execute investment declaration

Since 2016, employees have to submit Form 12BB to their employers to claim various tax benefits. One can find the sample Form 12BB from the Income Tax Department website. Under the taxation rules, the maximum an employee can claim tax benefits is up to Rs 1.5 lakh annually.

Which tax provisions give tax benefits

1)One of the main highlights of the Income Tax Act is Section 80C. It allows claims for expenses made on life insurance premiums, Equity Linked Savings Scheme or ELSS funds, Public Provident Fund, National Pension System, and school tuition fees for children, among other things, up to a total amount of Rs 1.5 lakh.

2) Section 80CCC allows a deduction for payment towards annuity pension plans, including interest or bonus charged on the annuity, financial services platform Groww explains.

3)Section 80CCD: "This includes the National Pension Scheme. There is no need to submit proof regarding NPS if the investment is under Rs 50,000, but you have to submit proof of PAN card and NPS transaction statement if exceeding the limit," Groww says.

4)Section 80D: This section offers tax deductions on health insurance premiums of up to a maximum limit of Rs 25,000 in a financial year.

There are additional provisions as well for claiming benefits on education loan, donations etc.

What is the procedure for investment declaration under the new tax regime?

The new tax regime is a simplified version of the older system, offering a lower rate of tax while eliminating most exemptions from the older scheme.

Employees are only required to submit Form 12BB declarations to their employers. They can only claim rebates under Section 87A up to Rs 25,000 and the standard deduction of Rs 50,000.

Things to avoid while declaring investments

Experts suggest it is a good practice to declare all income sources, otherwise, the situation may lead to tax evasion issues, inviting further penalties.

While it is advised to ensure proper documentation while submitting the investment declaration, in case it does not happen and the employer deducts TDS, an employee can claim a refund of the excess TDS deducted by filing the income tax return. 

Form 16 is the TDS certificate issued by your employer when they deduct TDS.