Income Tax Filing FY 2024-25: Employers are currently requesting salaried employees to provide documentation of tax-saving investments and expenses if they wish to reduce their tax liability. These documents are essential to prevent complete tax deduction at source (TDS) from the salary.
Most employees typically have until March to provide tax-saving documentation, however it is beneficial to submit them promptly. Until documentation is provided, employers will deduct the full tax amount from salary without considering any tax-saving investments. Tax specialists indicate that not every employee needs to submit investment documentation.
Which salaried employees are required to submit investment proof?
Regarding who must provide investment proof to avoid complete salary taxation, Prakash Hegde, a practising Chartered Accountant, told ET, “The employees who have opted for the old tax regime are required to submit investment proofs to their employers to claim exemptions and deductions via their employer. The employees who have opted for the new tax regime need not have to submit any proof for exemption and deductions as most of them are not available in the new tax regime.”
The Income Tax Act, 1961’s old tax regime provides various tax exemptions and deductions that individuals can claim to decrease their gross taxable income. This reduction in taxable income subsequently leads to lower income tax obligations.
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For those who selected the old tax regime at the beginning of the financial year, you’ll need to provide investment proofs to claim tax-saving deductions. Here’s a comprehensive list of common deductions and their required documentation:
- For
HRA exemption , tenants must provide their employer with a rent agreement and/or rent receipts. When yearly rent payments exceed Rs 1 lakh, the landlord’s PAN details become mandatory for claiming the House Rent Allowance exemption. - Regarding Section 80C deduction proofs, individuals can reduce their gross total income by up to Rs 1.5 lakh before taxation. This requires specific investments or expenditures within the Rs 1.5 lakh limit, including PPF, EPF, ELSS mutual funds,
NPS contributions , life insurance premiums, children’s educational fees, and housing loan repayments. - Under Section 80D, taxpayers can claim deductions on health insurance premiums, with additional allowances for parents’ coverage. The maximum deduction available for self and parents’ health insurance premiums is Rs 1 lakh.
- For Section 24B interest deduction, homeowners paying EMIs can claim up to Rs 2 lakh for interest paid on their housing loan.
- An extra NPS deduction of Rs 50,000 is available beyond the Section 80C limit. Employers require proof for claiming this additional deduction.
Tax Deductions Available Under New Income Tax Regime
The new income tax regime permits only two deductions for taxpayers, eliminating the need to submit investment documentation. These include a standard deduction of Rs 75,000 from salary/pension earnings and a deduction up to 14% of basic salary for employer’s NPS account contributions.
According to CBDT’s statement dated August 2, 2024, “72% of taxpayers have opted for the New Tax Regime, while 28% continue to be in the Old Tax Regime.” Documentation for these two deductions need not be submitted by employees.
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Flexibility in Tax Regime Selection for Salary TDS
Whilst employees can theoretically change their tax regime choice for TDS during the financial year, organisations often resist such changes due to administrative complexities involving TDS adjustments and documentation requirements.
Tax regulations permit switching between regimes during ITR filing, selecting the more advantageous option. For the financial year 2024-25, taxpayers must file returns by July 31, 2025. Late submissions will only be accepted under the new tax regime.
It is essential to file returns by July 31 to retain the option of choosing the old tax regime. Additionally, maintaining comprehensive documentation for exemptions and deductions is crucial for addressing potential queries from tax authorities during verification processes.
