Investment Declaration Form: 12BB for Salaried Individuals
A salaried employee can have a smoother financial year, maximize the tax savings, and remain compliant with the Income Tax Declaration regulations if he understands the investment declaration process and uses it effectively. The Investment Declaration Form is a crucial form that assists in the tax planning process for salaried employees. It allows them to reduce their tax liability through deductions.
This article aims to simplify the investment declaration process by focusing on the requirements and common concerns of the salaried employees. We will deep dive in understanding what is an Investment Declaration Form, why it is important, and specifics of Form 12BB.
Table of Contents
What is an Investment Declaration Form?
An Investment Declaration Form is a statement provided by an employee to an employer at the beginning of the financial year or at the time of joining a job. Through the investment declaration form, an employee provides an outline for planned investments and expenses for determining the eligibility for claiming the deductions. Using the information, the employer adjusts the monthly Tax Deducted at Source (TDS) amount of the employee.
Importance of Investment Declaration Form for Salaried Employees
Making an accurate investment declaration is of utmost importance to the salaried employees. It helps in reducing the tax liability of the employees to a great extent by utilizing the eligible deductions. Furthermore, it is a tool for better financial planning. The investment declaration form ensures deduction of the correct TDS amount so that the employee is not overtaxed through TDS, thus, increasing the take-home salary.
Investment Declaration Form: A Tool for Tax Planning
Tax declaration is an essential tool for effective tax planning. Here is why:
Reducing tax liability: Accurate investment declaration can help in saving taxes effectively and to a significant extent.
Avoiding last-minute hassles: Knowing the investments at the start of the financial year helps to avoid year-end rush. Also, the investments are spread over the year, facilitating effective tax planning.
Ensuring accurate deduction of TDS: Proper investment declaration facilitates accurate calculation of TDS and deduction thereby. This eliminates the surprises at the year-end.
How to Prepare an Effective Investment Declaration Form?
Few considerations should be made for making an effective Investment Declaration Form:
Knowing the eligible deductions: It is essential for a salaried employee to be aware of various sections under which deductions can be claimed. For instance, Section 80C is for investments in ELSS (Equity Linked Savings Scheme), PPF (Public Provident Fund), life insurance, and so on, while Section 80D is for medical insurance.
Accumulating relevant documents: Accumulate all the necessary documents essential for investment declaration such as rent receipts for HRA, home loan statements, life and health insurance receipts, and proof of investment.
Submit Form 12BB to the employer: After accumulating all the documents, submit investment declaration through Form 12BB along with supporting documents to the employer.
Review and update: If there are any updates or changes in the investment plans during the year, it should be updated to the employer as well. This will ensure accurate TDS calculations.
Form 12BB
Form 12BB is a declaration form for tax deductions. It is a statement of claims furnished by the employee to the employer for deduction of tax. The Income Tax Department has introduced Form 12BB in a standardized format for salaried individuals. Using this form, the salaried individuals can declare the deductions and savings to their employer.
Importance of Form 12BB
Form 12BB is important because of the following reasons:
Tax Planning and Tax Savings: Using Form 12BB, individuals can declare the tax-saving investments and expenses. This ensures that the employees are benefited from all eligible deductions under various sections of the Income Tax Act, thereby reducing the taxable income of the employees.
Facilitates Accurate TDS Calculation: The accuracy of Form 12BB ensures that the TDS is also determined accurately on the employee’s salary. If the TDS is not calculated correctly, it may result in the payment of higher taxes and then claiming refunds.
Helps in Compliance: Form 12BB facilitates compliance with the Income Tax Department’s guidelines, which requires detailed documentation and proof of investments and expenses mentioned as claims in the deduction.
Content of Form 12BB: What you Need to Declare?
A Form 12BB must comprise of the following details and supporting documents to justify the claims made:
House Rent Allowance (HRA): Employees who pay rent for their own accommodation are eligible to claim HRA. For claiming the HRA, employees should provide the following details: landlord’s name, address, and PAN (if the rent per annum exceeds INR 1,00,000).
Leave Travel Allowance (LTA): For claiming the LTA benefit in income tax, the appropriate travel bills and tickets should be submitted.
Interest Payable on Home Loans: For claiming interest payable on home loan, details of the lender along with the amount of interest payable should be declared. The PAN of the landlord will be required if the per annum rent exceeds INR 1,00,000.
Deductions under Chapter VI-A: Chapter VI-A deductions allows a wide range of investments and expenses:
Section 80C Investments: In case of contributions made towards EPF, PPF, life insurance premiums, tuition fees, principal repayment of home loan, ELSS, and so on can be claimed as a deduction. The maximum amount of deduction under Section 80C is INR 1,50,000.
Section 80D: Premium paid towards the health insurance of self, spouse, dependent children, and parents can be claimed as a deduction
Section 80E: Interest paid on education loan can be claimed as a deduction provided all the supporting documents are available.
Section 80G: Donations made to the charitable organizations can be claimed as a deduction provided the receipt is obtained from the charitable organization.
Additional deductions like Section 80TTA which allows a deduction towards the savings bank account interest, 80CCD(1B) towards the NPS, and others can be claimed as a deduction only with valid proof.
Submitting Form 12BB
Form 12BB should be furnished by the employees to the employer at the start of the financial year or at the time of joining the organization. It is a good practice to submit Form 12BB before the first payroll cycle so that the TDS will be determined by the HR department accurately.
Updating Form 12BB
In case of any updation or changes during the year in the information furnished in Form 12BB like: changes in investment plans, or deductions, it is important to update the Form accordingly. At various organizations, it is the employer’s practice for updating the information in Form 12BB at least once a year during the financial year to facilitate accurate computation of TDS.
Consequence of Not Submitting the Investment Declaration Form
If the investment declaration form is not submitted on time, it may lead to a higher deduction of TDS by the employer. Since, the TDS will be computed without considering the eligible deductions and exemptions. Thereby, the monthly take-home salary would be less.
Which Expenses and Investments can be Declared in Investment Declaration Form?
The following types of expenses and investments are eligible for deduction and can be declared through Investment Declaration Form:
Investments under Section 80C like: ELSS, NSC, PPF, and so on.
Under Section 80D: Health insurance premium paid.
Under Section 24: Interest paid towards home loan.
Under Section 80G: Donations made to eligible parties.
What is the Deadline for Furnishing the Investment Declaration Form?
The deadline for furnishing the investment declaration form varies from employer to employer. However, it is usually furnished at the beginning of the financial year or before the first payroll of the year. The HR department is responsible for informing the employees about the last date of submitting the investment declaration fForm.
FAQ
Q1. Explain the Investment Declaration Form.
Investment Declaration Form is a document which is submitted by the employees to their employer to declare the investments and expenses eligible for tax exemptions. The investment declaration form is usually submitted at the beginning of the financial year. Using the investment declaration form, the TDS computation is accurately made.
Q2. What is the need of submitting the Investment Declaration Form?
The investment declaration form plays an important role in reducing the TDS amount, thereby increasing the take-home pay. Since, it considers the investments and eligible deductions in the salary from the beginning of the financial year.
Q3. Which information should be furnished in the Investment Declaration Form?
Information of deductions and expenses such as: investments made under various options available as per Section 80C and Section 80D, home loan interest paid under Section 24, house rent allowance (if, house rent is paid), and any other type of tax savings expenses or donations.
Q4. Can the declarations be changed in the middle of the year?
Yes. Usually, the employers allow employees to update the investment declaration form in the mid of the year, facilitating the incorporation of any changes in the investment plan or expenses. However, this provision differs from company to company.
Q5. What is the consequence of giving wrong information in the Investment Declaration Form?
Providing incorrect information in the investment declaration form may lead to an incorrect computation of the TDS amount and may lead to a payment of a higher or a lesser income tax. The underpaid taxes attract penalties and interest.
Q6. Does the proof of declarations are also required to be submitted?
Yes. The declaration made in the investment declaration form should be supported by the valid proof of investments and expenses. These are to be submitted at the end of the financial year. Failure to submit the investment and expenses proof will result in the non-allowance of the tax benefits.
Q7. What is the consequence of failure to make the appropriate instruments as per the Investment Declaration Form?
If the employees failed to invest in the appropriate instruments as reported in the investment declaration form, the employer will adjust the TDS amount for the remaining months of the financial year. This may lead to a higher TDS deduction for the remaining months and a lesser take-home salary.
Q8. What is the consequence of not submitting the Investment Declaration Form?
If the investment declaration form is not submitted, the employer will compute the TDS without considering any deductions or exemptions leading to a higher tax liability.
Q9. What is the effect of the Investment Declaration Form on the final tax liability?
Using the investment declaration form, the TDS from the salary is estimated. However, the actual tax liability is also determined at the time of filing the Income Tax Return (ITR), where also the investments made during the financial year are considered.
Q10. Can the investments made during the year declared in Form 12BB, if not made at the beginning of the year?
Yes. Form 12BB can be updated during the year as when there is any change in the investments or expenses already declared in the investment declaration form. The investment proofs and other supporting documents should be attached.
Q11. What is the impact on investment declaration of job change during the year?
In case of a job change during the year, the new employer should be informed about the amount of TDS deducted by the previous employer to prevent a higher deduction of tax.
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