: For Finance Professionals & Students

Points to be known as an employee regarding taxation of Salary

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When the employers are in the process of start asking your proofs for your investment declaration which you submitted for your tax & TDS calculation from your salary. It is not only the responsibility of the employer and also responsibility of the employee to give proper income and investments details to compute your tax to avoid last minute surprises. It is not practically for everyone to know the provision of income tax. But knowing some simple steps makes you avoid the interest cost on your taxation. In this article I would like to brief about some basic points as employee should know to avoid excess/short deduction of TDS by the employer from the employee salary and finally it will lead the interest on delay payment or refund due from the department.

 1. Know your salary components: Salary in the income for the employee from employer as general meaning we can tell as salary, but all the salary has some components and structure.  Each and every component of salary will be given for some purpose like salary, dearness allowance will be paid for your basic living needs, conveyance allowance will be given for your conveyance expenses, and House rent allowance will be given for your rent expenses. So try to understand your salary components & structure, it will be very helpful to plan your taxation and optimise the same. Most of the employer now designing their salary structure based on giving the maximum tax benefit only and also salary range of the employee they will fix the component. As an employee understand the available tax benefit components in the employer salary structure and utilise the maximum tax benefit components.

 2. Give proper declaration with employer: Every employee should submit the declaration  through form 12B with their employer  either  start of the financial year ( i.e. April) or joining with new employer during the mid of the financial year. It is the basic document for your tax calculation, It will contain the various investments and other payment which are eligible for deduction under chapter VI-A.  Most of the employees are treating this as formality document in the employment and also not aware the details given in the declaration only will decide your TDS and take home salary. While giving this declaration, employee need to take care of the actual running investment details and further new investment planned for the year. So try to give the planned investment in very practical manner, because some of the employees will declare all the deduction available option, it may reduce your tax deduction in the starting month but if unable to do the savings it will eat your total salary in the later months and make you in trouble. So submit the declaration in practical manner, it will help your deduction & cash flow in even manner throughout the financial year.

 3. More than one employment: It is very usual that shifting from one employer to other employer during the financial year or working with more than one employment. While shifting one employer to other during the mid of the financial year, it  is responsibility of the employee to declare the  salary details of the previous employment with proof, if fails it will be trouble during final tax calculation and return filling, because if employee not declaring those details, it will lead consideration of deduction under chapter VI-A and slab basis exemption details twice and finally  it will effect while consolidating and computing the income and tax for whole year and make you to pay big amount as tax and interest.  Other case  having employment more than one employer,  such as case you can plan tax very careful and declare your investment details in one place only and inform other employer to consider your income as consolidate base and deduct the tax as per the slab with avoiding basic exemptions.  It is also required to disclose the TDS deducted by the other employer or any other source with employer to consider the same, but the proof of the same need to be submitted

 4. Declaring other income details:  It is one of the point which most of the employees are forgetting or avoid, employees may have different source of income other than salaries. It also can be declared, but practically here employee can declare the income sources from house property and Income from other sources, because Income from business & capital gain has different computation and tax calculation. 

 5. House property income/loss declaration:  As we discussed point number 4, Income or loss from other heads will also include loss from house property which is normally known every one interest on housing loan claim u/s.24 (b). While declaring loss from house property do remember to collect the provisional interest certificate from the lender with details interest & principal, it will be helpful in accurate tax calculation. Because interest deduction will be claimed u/s.24 (b) and principal portion will be claimed under sec.80C. Some cases rental income from the property will be there that time you can give rent details to compute the tax. Where person having more than one house property and using one is self occupied and others are let out that time it is option of the employee to select which house is self occupied and which house is let out, based on the maximum tax benefits he can select. But only one house property can be taken as self occupied other property/ites are can be declared as let out or deemed to be let out and calculate the income accordingly.

 6. House rent claim: House rent allowance is the allowance given for meet the rent expenses of the employee, which most of the employer having this component. For calculating House rent allowance exemption u/s.10 (13A) employee need to submit the rental receipts. Presently if employee claiming rent expenses more than Rs. 1 Lakh per annum it is mandatory to be obtain the PAN from the house owner and submit to employer. Following points need to remember before claiming HRA exemption

 a. Only  rent for employee working place and staying house  can be claimed under HRA,  no other house rent is eligible for exemption

 b. While staying in own house, HRA exemption cannot be claimed

 c. Housing interest deduction u/s.24 (b) as self occupied and HRA exemption is not allowed at same time

 d. While staying in rent free accommodation provided by employer and receiving HRA, and then HRA exemption is Nil.

 e. In your salary component not having HRA, then your HRA exemption is also Nil.

 In case your salary structure not having HRA component, then you are eligible to claim deduction u/s.80GG. That time you can insist your employer to consider the deduction u/s.80GG during tax computation.

 Some time employer missed or not considered your rent claim under HRA or Sec.80GG, employee has the right to claim in their income tax return with having the document proof.

 Conveyance & Transport claim: All the salary structure has the component called conveyance or transport allowance. It is allowance given for the employee to compensate the transport between residences to office. Conveyance or transport or allowance whatever name called and given for this purpose is eligible for exemption Rs.800 per month. Employees no need to submit any proofs for claiming. Incase salary structure not having this component and employer not consider the exemption, employee has right to claim the same in their income tax return.

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