Tax Declaration Form: How to File and Key Insights

What is Tax Declaration?

A tax declaration is a projection of tax-saving investments and expenses that you, as an employee, intend to make during the financial year. It is to be submitted to your employer at the beginning of the year. The employer uses this information to deduct TDS (Tax Deducted at Source) from your monthly salary and deposit with the government.

Later, you will also be required to submit proof of all the listed investments along with Form 12BB. It is important to note here that the Income Tax (IT) declaration is just an estimate, and the actual investment amount may vary.

Tax Declaration Explained with an Example

Let us take the example of Mr. Aman to better understand what is tax declaration’s effect.

At the beginning of 2024-25, Mr. Aman declares that he will invest ₹50,000 in the Public Provident Fund (PPF), pay ₹10,000 as medical insurance premiums, and incur ₹50,000 as life insurance premiums. His employer will deduct a total amount of ₹1,10,000 from his annual salary to calculate his taxable income and TDS.

Towards the end of the financial year, Mr. Aman will submit Form 12BB and proof of investment. The employer will then adjust TDS according to the actual amount.

Recent Updates on Tax Declaration for Employees

The tax declaration provision has undergone a change with the introduction of the new tax regime. Under this regime, employees can opt for lower tax rates in exchange for giving up most exemptions and deductions. However, salaried employees can still claim two deductions under the new tax regime:

• Standard deduction of ₹75,000
• Employer’s contribution to the NPS

In both these cases, you need not file the tax declaration or Form 12BB.

Overview of Form 12BB and Its Purpose

Form 12BB is a statement that is filed at the end of the financial year to claim deductions for various investments and expenses under the Income Tax Act. It declares all investments you have actually made during the year, along with their proof.

Form 12BB helps employers calculate the correct taxable income and finalize TDS adjustments. They can check whether the tax deductions considered during TDS calculation at the start of the year were accurate or they need to be adjusted. The form requires details like your name, address, PAN, investment amount, and proof. By filing Form 12BB accurately, you can reduce your tax liability and ensure compliance with tax regulations.

Declaring Investments

You should note at this point that income tax declaration for salaried employees is just a projection. IT declaration meaning helps the employer get an estimate about how much TDS is to be deducted from your salary. This amount is finalized when you submit Form 12BB along with the evidence.

Investment Declaration can be Made for the Following Investments

Claiming tax deductions on the following investments can help you increase the amount of your in-hand salary.

Home Loan Interest Payments

When you pay interest on your home loan, you can claim a deduction of up to ₹2 lakhs under Section 24. In such a case, you must submit the lender’s details, loan certificate, property possession certificate, and a document declaring your share of ownership, along with Form 12BB.

House Rent Allowance (HRA)

While HRA is included in your salary, a part of it is deducted from your taxable income as per the provisions of Section 10 (13A). You can benefit from this deduction by submitting rent receipts. If you pay a rent exceeding ₹1 lakh, you must also submit the owner’s PAN details.

Leave Travel Allowance or Concession (LTA)

If LTA forms part of your compensation structure, you can claim deductions on actual travel costs incurred for domestic travel. You will need to submit travel tickets and boarding passes for the same.

Health Insurance Premium (Mediclaim)

Section 80D allows you to reduce your taxable income by paying premiums for medical insurance taken for yourself or your family. The amount must be paid in any mode other than cash, and you must file the premium payment receipts with Form 12BB.

Other Deductions Under Income Tax Provisions

In addition to the above provisions, you can also claim deductions under the following sections. Documentary evidence must be submitted in all such cases:

• Section 80C: Life insurance premiums, PPF contribution, investment in tax-saving mutual funds, children’s tuition fees, and more.
• Section 80CCC: Contribution to pension funds
• Section 80CCD: Contribution to the National Pension Scheme (NPS)
• Section 80E: Education loan interest payments
• Section 80G: Donations to specified organizations

Verification Process for Supporting Documents by Employers

The Form 12BB allows the employer to verify whether the projections made in the tax declaration were accurate or not. You can facilitate this process by following these steps:

• Head over to the income tax e-filing portal and log in to your account
• Download the Form 12BB from the ‘Forms’ section
• Fill out the form with personal details like your name, address, PAN, employee code, employer code, etc.
• Give details of your investments and expenses, such as HRA, LTC, Section 80C investments, and more. Do not forget to submit documentary evidence wherever required
• Double-check whether you have filled the accurate information and sign the declaration
• Submit the form to your employer and keep a copy for your reference

Possible Scenarios While Filling the Tax Declaration Form

The discrepancy between the tax declaration’s projections and the actual investments reported under Form 12BB can either increase or decrease your final tax liability.

If the Actual Investment Amount is Less Than the Declared Amount

If your actual investment falls short of the declared amount, your employer will increase the taxable income based on the final proof of investments provided. This will result in additional TDS deductions in the last few months of the financial year to compensate for the shortfall.

If the Actual Investment Matches the Declared Amount

In this case, there will be no further changes to the TDS deducted. The tax liability remains as initially estimated, ensuring a smooth tax filing process without additional adjustments.

If the Actual Investment Exceeds the Declared Amount

If you end up investing more than what you initially estimated, you will be eligible to claim a higher tax deduction. This, in turn, will reduce your tax liability. You can mention the same while filing your income tax return and receive a tax refund for the extra investments.

FAQs on Tax Declaration Form