Income Tax News: What if You Miss Submitting Investment Proofs on Time? Check Details

Income Tax News: It's that time of year again—the requirement to provide appropriate investment documentation in order to claim deductions and lower employer-withheld taxes. While we notify the employer at the start of the fiscal year about the proposed investment declaration, which is the basis for Tax Deducted at Source (TDS) deductions for the first three quarters, it is important to remember that employees are required to provide their employers with proof of these investments during the fourth quarter (January through March).

Understanding the TDS System

Under the TDS system, taxes are subtracted at the income's source. In the context of employment, employers withhold TDS from workers' paychecks and deposit it on the worker's behalf with the government. However, what occurs if the investment proofs are postponed until later in February or March, or are not submitted by the deadline?

“In case the investment is scheduled in February or March, an employee may ask the employer for a second window to accept the said proofs. If the necessary investment proofs are not submitted within the stipulated time, it will lead to higher tax withholding on the salary income,” said Yeeshu Sehgal, Head of Tax Market at AKM Global.

The Fiscal Year Finale for Deductible Expenses

Neeraj Agarwala, Partner at Nangia Andersen India, said, “In general, employers allow employees until the end of the financial year, which concludes on March 31, to furnish all necessary proofs. The calculation of Tax Deducted at Source (TDS) for the months leading up to February relies on the investment declarations made by the employee. However, for the month of March, TDS is computed based on the investment proofs submitted and approved by the employer. Neglecting to provide these investment proofs may result in a higher TDS deduction during March.”

After March 31st, expenses are not considered deductible for the current fiscal year. Thus, in order to be eligible for the deductions, people need carefully consider their spending and investing decisions and make sure they turn in the necessary documentation by the deadline.

TDS Collection Dynamics

Even if an employee indicates that they will be making investments in the upcoming months, is the employer still able to collect TDS?

“An employer is responsible for deducting TDS from an employee's salary, even if the employee conveys that they will submit on the due date in the coming months. An employer may deduct TDS based on the declarations submitted by employees in the first 2-3 quarters of the financial year. However, an employee will be required to submit actual proofs during the last quarter, and the final withholding shall be based on the actual proofs. The responsibility for deducting taxes and depositing them with the government lies primarily with the employer. If an employee fails to provide the necessary investment proofs within the stipulated time, the employer is required to deduct TDS at a higher rate, as applicable. The obligation to deduct TDS is not contingent on the future submission of investment proofs,” said Sehgal.

Deciphering Investment Declarations and Proofs

Investment proof and declaration are two separate things. At the beginning of the fiscal year, an employee submits a statement detailing all the deductions they plan to make over the year. Employees must, however, provide investment proofs to the employer by March 31 of the fiscal year to validate the deductions made at the beginning of the financial year. Employees can include qualifying deductions directly in their income tax return in the event that investment proofs are not submitted on time. In this scenario, they can request a refund for any excess TDS that the employer withheld as a result of the non-submission of investment proof.

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