How to Claim Deductions not Accounted by the Employer: If an individual misses the submission deadline of income tax proof or any tax-saving investments as declared by him/her at the beginning of the financial year. Also, if the individual missed submitting the bills for reimbursements, it will result in higher tax deductions from salary in February and March.
But there are provisions to claim exemptions and tax deductions while filing an income tax return, even if the individual has missed submitting the documental evidence to the employer.
So after filing the income tax return, you are eligible for a tax refund from the Income Tax Department if the amount of tax has been deducted more than the due amount. This information does not show up on Form 16, as the details were not informed to the employer, but exemptions and tax deductions can be claimed in the tax return.
The requisite details should be kept ready while filing the tax return and claim them in the relevant sections. The exemptions and tax deductions that an employee missed informing the employer and can claim while filing ITR are as follows:
- Under section 10, the exemption can be claimed for House Rent Allowance.
- Deductions that can be claimed under section 80C:Â If an individual invested in NSC certificates made deposits to PPF or made any payment or investment to any funds or certificates that are eligible for deduction under section 80. The individual can claim all such deductions at the time of filing an income tax return.
- Preventive health check-up bills: If the individual has not yet exhausted the deduction limit under section 80D, such individuals can avail a maximum deduction of ₹5,000 by claiming such preventive health check-up bills.
- Details of House Loan: In case an individual has missed submitting the details of the home loan certificate to the employer, they can save on such interest on a home loan while filing an income tax return.
- Individuals cannot claim deductions on home loan interest when the house is under construction. Such deductions can be claimed only after the construction is finished.
- The tax saving on a home loan can be claimed only when the loan is sanctioned in the individual’s name. A co-borrower can also claim these deductions.
- An individual can claim a maximum deduction of up to ₹2 lakhs on his/her interest on a home loan if the family or the owner resides in the said house property or the house is vacant.
It is to be noted that the individual does not have to submit any investment or deduction proofs to the Income Tax Department while filing an income tax return. Income Tax Returns are submitted without attaching any physical documents or files. But such records must be kept or maintained safely for a period of 6 years, in case the Assessing Officer from the Income Tax Department asks for it. Legal proceedings of income tax can be initiated up to six years before the current financial year.
Deductions/Exemptions That Are Missed By An Employee And Cannot Be Claimed While Filing Income Tax Return
There are some deductions that the employee cannot claim while filing an income tax return when he/she has missed informing the employer. Such deductions are:
Leave Travel Allowance (LTA): Expenses incurred by the individual on a trip against LTA during the year can only be claimed via the employer. The LTA claim can be made twice in a block of four years. There is some relief provided to individuals as unclaimed LTA can be carry forward to the following year. So the individuals can request the employer to refrain from deducting tax this year and allow them to claim it the following year. But if such declarations have not been made and TDS has already been deducted on LTA, then a refund of that TDS cannot be made.
Reimbursement of medical expenses:Â If an individual fails to submit the medical bills to the employer, the employer will deduct tax from the monthly salary, and the remaining amount will be paid. This will lead to higher charging of tax amount and will reduce the monthly significantly. The individual cannot declare such expenses while filing an income tax return.
Claiming Of Unaccounted House Rent Allowance By Employer
Sometimes it may happen that you missed out on submitting your rent receipts to the employer, or there was some error on the employer’s side. Whatever it is, you can still claim exemptions on rent receipts while filing an income tax return.
Deduction of TDS from employee’s salary is more when rent receipts are not declared. The individual may be eligible for a refund if the amount of net tax paid is more than due tax. There are specific steps that the employee can follow to claim HRA when it is not declared by the employer, which is as follows:
- The employee needs to calculate HRA.
- Filling the details of salary in an income tax return and modifying details of HRA.
- Check whether the tax refund is due or not.
Note:Â There is no change required in filing in TDS details as per Form 16 and verified in Form 26AS or other schedules.
In ITR1, the employee can claim HRA that the employer does not account for. The employee can deduct the amount of exemption of HRA from the Gross Salary and enter the amount as Income from Salary in ITR1.
In ITR2, the employee can claim the HRA not accounted for by the employer. The employee can calculate the amount of HRA exemption and deduct the amount from ‘1(a) i.e. Salary as per provision contained in sec 17(1)’ and fill in the required details.
Suppose your Gross Salary according to Form 16 is ₹5,30,000 and you have an exemption for HRA, then instead of declaring ₹5,30,000 in ITR1, fill in ₹4,90,000.
How To Claim Exemptions/Deductions From Employer U/S 80?
Investment Declaration to be made by the employee for Tax Exemption/Deduction
The Income Tax Act puts the liability of deducting tax from the salary at the time of payment to the employer.
The employer is liable to deposit the tax within the seventh day of the month with the government. The laid down rules of TDS are stringent, and the employer faces strict actions from the government for non-deposition or non-deduction of tax. It is also the responsibility of employers to file TDS at the end of every quarter of a financial year.
As a result, the employees are asked to declare their proposed investments for tax deductions and exemptions from the beginning of the financial year. This is required to calculate the amount of taxable income according to the investments proposed and deduct the tax accordingly.
Some Standard Deductions/Exemptions
- Leave travel allowance (LTA), and House rent allowance (HRA) are the two most common exemptions that can be claimed.
- Under section 80C, investments in NSC certificates, PPF, ELSS, home loan repayment, and life insurance premium are some of the standard deductions.
- Under section 24, interest on housing loans is a deduction that can be claimed.
- Other standard deductions include interest on education loan (under section 80E), medical insurance premium (under section 80D), maintenance of disabled dependent (under section 80DD), etc.
Thus, after submitting such tax-saving investment proposals, the employer calculates the amount of tax and starts deducting it from the monthly salary of the employee.
Proof Of Proposed Investments To Be Submitted Before The Due Date
The employer asks for submitting the proofs of the before mentioned proofs of proposed tax-saving investments by the end of December or the beginning of January. Now sometimes, it happens that employees fail to make the said declaration or fail to provide documents of the declaration within the prescribed time. Now, what will happen if the employee was unable to invest in the proposed declarations?
Suppose an employee declared that he would invest ₹20,000 in Public Provident Fund (PPF) but fails to invest by January or fails to purchase any medical insurance proposed. Then the employer will be responsible for recalculating the amount of tax and recover the shortfall amount of tax from the salary in the remaining months of the financial year.
As a result, the tax liability will increase, and the salary of the employee will reduce. It will be difficult for the employer to adjust the shortfall of TDS in a month’s salary, so the employer prefers sufficient time of two-three months.
The employees are issued Form 16 by the employer for every financial year. The details of income from salary along with TDS are all provided in Form 16. Now, what happens when an employee invests after the deadline or when the employee invests more than the proposed investment amount?
In such cases, the employer recalculates the tax liability and deducts it from the salary of the remaining months, which will lead to extra tax deductions. The employees can claim deductions or tax exemptions while filing income tax returns. The employees can then calculate the final amount of tax liability considering the tax
Exemptions/deductions. After final calculation, if the total amount of tax liability is less than the amount of taxes paid or deducted during the year, the employee is eligible for a tax refund.
Deduction of TDS and obtaining Form 16 is not sufficient. The employees are required to file his/her income return before the due date, i.e., 31st July, considering other incomes in addition to income from salary, and claim refunds or pay taxes, whatever the case may be. It is crucial to keep records of investments, in case if the employer misses to deduct taxes or deducts an extra amount of taxes, then those investment certificates are required for claiming refunds.
Deductions To Be Claimed To Save Tax U/S 80 In Income Tax Return
We can understand this with an example. Let’s assume that Mr. Sarkar failed to submit any proof of tax-saving investments to his employer. The details of Mr. Sarkar’s income, investments, and TDS are as follows:
- Income from salary: The documentary proof is Form 16. The amount to be deducted as TDS for salary is updated in Form 26AS.
- Income from other sources: Interest earned from a savings bank account is ₹5,000, and Interest from Fixed Deposits is ₹ 20,000. The documents required are:
- Form 16A shows TDS on interest on fixed deposit is charged by the bank at the rate of 10% if the interest on fixed deposit in the financial year is more than ₹10,000. As Mr. Sarkar has earned fixed deposit interest of ₹20,000, banks would deduct 10% of 20,000, i.e., ₹2,000. This data is updated in Form 26AS.
- The document to be produced for interest on a saving bank account is the bank account statement. No TDS is to be deducted for interest on a saving bank account.
- He has also earned an amount of ₹2,200 as dividend from equity and stocks, mutual funds. Interest from the public provident fund was ₹672. This is a tax-free or exempted income
- Deductions under Chapter VI-A: The investments made by him allow him to save income tax.
- Section 80C: Suppose he invested ₹30,000 in Public Provident Fund (PPF) and paid ₹8,000 as a premium for LIC policy. These are tax-saving investments and allow him to save tax under section 80C.
- Section 80D: An amount of ₹10,000 was paid by him for a premium health insurance policy for his family.
- Tax Deducted at Source (TDS): The TDS amount charged on the interest on fixed deposit is ₹2,000 shown in Form 16A provided by the bank.
Note: Bank charges TDS only when interest on fixed deposit is more than ₹10,000 in a year.
As he has failed to submit the declaration/proof to his employer, the employer, according to the calculations, has deducted more tax. Now the employer has deducted tax (including Education Cess and Surcharge) of ₹39,140.
But the total income after deductions of Chapter VI-A is different. Now it is ₹6,00,000 instead of ₹5,53,000.
So, the total tax that the employer will deduct from the employee will be calculated as follows:
| Description | Income (₹) | Tax (₹) |
| Exempt Income | 2,50,000 | 0 |
| Income Chargeable @10% | 3,20,000 | 32,000 |
| Income Chargeable @20% | 30,000 | 6,000 |
| Total | 6,00,000 | 38,000 |
| Education Cess @3% of tax liability | 1,140 | |
| Total tax liability | 39,140 |
Part B and part C (for claiming deductions) of ITR1 remains the same.
We need to compute the tax for Mr. Sarkar. The total taxable income of Mr. Sarkar is:
= Salary Income – Deductions + Income from other sources
= ₹ (6,00,000 – 47,000 + 25,000) = ₹5,78,000. As Mr. Sarkar’s age is below 60 years, there is no change in tax computation, and the exemption limit is ₹2,50,000.
The computation of his income is as follows:
| Description | Income(₹) | Tax(₹) |
| Exempt Income | 2,50,000 | 0 |
| Income chargeable @10% | 3,20,000 | 32,000 |
| Income chargeable @20% | 8,000 | 1,600 |
| Total | 5,78,000 | 33,600 |
| Education Cess @3% of tax liability | 1,008 | |
| Total tax liability | 34,608 |
So the total tax liability of Mr. Sarkar, including income from interest on saving bank account and fixed deposit, is only ₹34,608. His employer has deducted ₹39,140 and a TDS deduction of ₹2,000 by the bank on a fixed deposit. Mr. Sarkar has paid a tax amount of ₹6,532 as more as shown in the below calculations:
- Tax charged after including TDS: ₹(39,140 + 2,000) = ₹41,140
- Actual Tax liability: 34,608
- Amount of tax paid more: ₹(41,140-34,608) = ₹6,532
The amount of tax paid in excess can be claimed as a tax refund.
Changes in Part D of ITR1
- There will be no change in bank details and information about exempt income.
- As the paid amount was more than the actual tax, he would not have to pay Self-Assessment Tax and Advance Tax, so Sch IT: The details of Self-Assessment and Advance Tax would be empty.
- There will be no change in ITR1 Sch TDS2 for TDS deducted by the bank.
- The details of TDS will change only.
After filling the form in offline paper mode or e-filing, he needs to submit it.
It is to be noted that although the employer is deducting more TDS, the employee still may have to pay the tax amount if his total tax liability is more. So the employee may not always get the opportunity of claiming a tax refund.
Deductions To Be Claimed For The Home Loan While Filing Income Tax Return
Income from house property is considered when an individual owns an office, a shop, a building, a home, or land attached to the building like a parking lot. There is no difference between a residential and a commercial property according to Income Tax Act. Tax is charged on all types of properties under the common head Income from House Property in the income tax return.
Self-occupied house property is used for an individual’s residential purposes. This property may be occupied by the individual or his/her family, parents and children, and spouse.
For Income Tax, a vacant house property is also considered self-occupied. Then there is no income from the individual’s house property, and the gross annual value of such property is regarded as zero.
Let-out house property is such a type of property rented for a part or whole of the year. The gross annual value in the case of a let-out property is its rent value. The property’s rental value must be equal to or higher than the reasonable rent of the property already determined by the municipality where the property is located.
If the number of houses owned by an individual is more than one, then the income tax department considers only one property as a self-occupied house. All other houses are treated as rented properties even when they are rented at all. Calculation of rental income is based on the rent a similar property in the same area would earn.
Calculation of Income from House property for one Self Occupied House = 0 (Gross value of the house) – Payment of Home loan Interest – 1/5th of preconstruction loan.
Maximum Income from House property for one Self Occupied House that an individual can claim is = Maximum of ₹2,00,000 and Income earned from House property for one Self Occupied House calculated above.
Suppose that Manisha has taken a home loan of ₹40,00,000 (₹40 lakhs) for 20 years @11%, her loan EMI will be ₹41,288. For the financial year 2017-18, she paid ₹4,95,456, including interest and principal. So Total income form House property is= 0 (Gross value of the house) -₹4,95,456 (Payment of Home loan Interest)= – ₹4,95,456 (please note the minus sign)
When this amount is provided in ITR1 as income from house property, then an error message will appear. It will state that loss cannot exceed ₹2,00,000 for income from House property. A maximum of ₹2,00,000 should be filled in irrespective of the amount of home loan interest is if it’s self-occupied.
The home loan interest to be filled in ITR1 with a negative sign.
If the amount of total Income from a House property for one Self-Occupied House is less than ₹2,00,000, then such amount should be entered under the head of Income from House Property.
Record-Keeping Of Necessary Documents
It is always advised to maintain all documents related to income tax, such as bank account statements, documents of tax-saving investments, Form 16, etc., even if supplied to the employer.
Under the Income Tax Act, legal proceedings can be initiated up to six years before the current financial year. Individuals with income from foreign assets are required to maintain necessary documents for a period of seventeen years from the end of the relevant financial year. Till such time documents must be kept safely so that they can be produced as and when asked by the Assessing Officer of the Income Tax Department.
Tax-saving investments must be planned at the beginning of the financial year. Such necessary documents must be submitted to the employer on time for calculating the proper tax amount. Delay in submitting such documents results in charging more tax amount, which can only be claimed at the end of the financial year while filing an income tax return.