Submit proper proof for tax deductions :: Business Line

It is that time when all salaried tax payers are required to submit their investment details to their employers. More often than not, employees are perturbed by the fact that companies insist on proper documentary proof of investments made or expenses incurred. In the absence of proper documents, employees could be denied the deduction or exemption. The key to avoid such a sticky situation is just awareness.

There is a clear mandate given to all companies by the Central Board of Direct Taxes (CBDT) directing them to satisfy themselves about the correctness of the deposits, subscriptions or payments made by employees, by calling for such particulars/information, before allowing for such deductions. In case the company is not satisfied about the correctness of the employee’s claim, it should not allow such deductions. If the company does not comply with this, it is solely responsible for any additional taxes arising out of the deductions at the time of scrutiny by the tax department. So companies take utmost precaution to safeguard their interest and insist on documents which can substantiate the claim for tax benefit. From an employee’s perspective, in case a company denies any benefit due to lack of sufficient documentation, it becomes an even more difficult task to claim such benefit from the Income-Tax Department (while filing returns). Besides, some benefits (medical and leave travel allowance) cannot be claimed and must be given only by the company.

Various institutions (banks, insurance companies and even landlords) are well aware of what documents to provide for this purpose. Given this, all employees need to do is to understand the documentation required for benefits they wish to claim and be well prepared. Given below are some must haves that will help you ensure that your documents are complete in all aspects.

Rent receipts: Must be in the name of the employee along with the address, purpose of the payment (towards rent) and period (month). The landlord’s signature with name and address should also be mentioned. Landlord’s PAN is required if annual rent is more than Rs 2 lakh.

Life-insurance premiums: Must have name of the insured, sum assured and payment date. The maximum exemption under section 80C of the Income-Tax Act is restricted to 20 per cent of the sum assured value for policies issued till 31 March, 2012, and 10 per cent for new policies after April 1, 2012.

Single-premium policies: Insist on documentation for sum assured value. Else, collect a certificate from insurer specifying the amount of premium eligible for exemption with section reference.

Fixed deposits (FD): Check if the five-year FD certificate mentions that the deposit is eligible for the tax-saver scheme. Else, obtain a certificate from the bank. There are general five-year schemes which are not eligible for 80C.

Housing loan: Obtain the latest bank certificate. Ensure the certificate has the name of the employee, purpose of the loan, period of repayment (current financial year), interest and principal shown separately.

Medical policies: Ensure premium receipt mentions “eligible for deduction under 80D.”

(The author is senior tax professional, Ernst & Young. Views are personal.)

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