The income tax (I-T) department introduced a new tax regime in financial year 2020-21, giving taxpayers the choice between this and the old one. These two regimes differ in terms of taxation slabs, rates and allowances deduction, ultimately affecting the investment proof submission.
Every employer may have specific requirements for submitting investment proofs, so employees need to comply with those requirements.
Under the old tax regime, a multitude of tax deductions and exemptions are available under various sections of the Income Tax Act. These include deductions on House Rent Allowance (HRA), Leave Travel Allowance (LTA), standard deduction, education or hostel allowance for children, professional tax, and home loan interest under Section 24, among others. Hence, taxpayers must submit proofs for these investments or deductions claimed.
“Depending upon the exemption/deduction being claimed, employees are required to submit evidence or particulars of claims in support of the same. Accordingly, for HRA exemption, an employee is required to submit the details of rent paid and the name and address of the landlord. Where the aggregate rent paid during the financial year exceeds Rs 1 lakh, then the landlord’s PAN is also required to be submitted. Usually, rent receipts are required to be submitted to the employer,” said Divya Baweja, Partner, Deloitte India.
Also, for claiming a Leave Travel Allowance exemption, it is mandatory to submit copies of invoices for the expenditure incurred. In the same way, it is important to submit the lender’s Name, address, PAN, and interest paid during the said financial year for claiming housing loss. The employer would generally request a housing certificate issued by the lender with the said details.
Suresh Surana, Founder of RSM India, said, “Section 192(2D) of the IT Act requires the employer to obtain from the taxpayer the evidence or proof of prescribed claims (including a claim for set-off of loss) in Form 12BB to estimate the income of the taxpayer to withhold TDS on the same.”
For deductions under Chapter VI-A, like 80C, 80D, etc, evidence of investment/expenditure for each of the deductions should be submitted.
On the contrary, the new tax regime simplifies the taxation process through rationalised tax rates and slabs but does away with most of the tax exemptions and deductions. Hence, under this system, taxpayers are relieved from the burden of managing and submitting multiple proofs of tax-saving investment. However, taxpayers opting for a concessional tax regime shall be eligible for a few deductions and exemptions. Therefore, they would be required to provide a disclosure of the same in their Form 12BB. For instance, Surana says, “Copy of the deposit receipt is required if the amount is deposited towards Agniveer Corpus Fund u/s 80CCH(2) of the IT Act.”
Baweja said, “The new tax regime only allows standard deduction and deduction for the contribution made by the employer to the New Pension Scheme(NPS), which does not require any proof to be submitted. Hence, employees are not required to submit any document to their employer if they are opting for the new regime. However, it is important that the documents substantiating the various deductions/exemptions are retained by the employee in case of any questioning by the tax authorities,” said Baweja. ”
Thus, those willing to forgo exemptions for a simplified tax structure may opt for the new regime, while those benefitting from several deductions may choose to stick to the old. Regardless, it is critical for taxpayers to properly understand both regimes, assessing the associated liabilities and benefits before making an informed decision.