Over the last few years, India has witnessed exponential economic growth. With such rapid growth, the county must monitor and track all taxpayer investments to verify they are paying their taxes correctly. Investment declaration is one such practice that helps employees disclose their expenses and investments to determine their tax liability.
Investment declaration allows an employer to assess the expenses a salaried employee incurs and the investments they plan or make during a financial year. Many expenses and investments qualify for deductions—for instance, house rent, home loan repayment, and health insurance premium.
Disclosing these expenses and investments can significantly impact a taxpayer’s take-home salary while helping the employer calculate your taxable income to deduct TDS (tax deducted at source). One instrument that serves as a tool to disclose your deductions as a part of your investment declaration is Form 12BB.
What Is the 12BB Form?
Form 12BB is a statement of an employee’s claims for tax reduction under Section 192 of the Income Tax Act, 1961. It was only after 2016 that Form 12BB was made mandatory for taxpayers seeking tax reductions for certain expenses under the act.
Form 12BB allows a salaried individual to submit an official statement of investment and expenses made throughout the year. However, an investment declaration through Form 12BB is only a roadmap of what a taxpayer plans to invest. At the end of the fiscal year, the employee must submit documentary evidence of all expenses and investments.
Although the form may be easy to fill out, do not rush through it to meet the deadline. If you don’t want to make mistakes that will cost you money all year, fill in the details correctly. Here is a guide on successfully filling out the form.
Types of Investment Declarations That Can Be Entered in Form 12BB
Following are the investment declarations and expenses that must be filled in Form 12BB:
- Home Loan Interest
Suppose an employee has availed of a housing loan. Then, they can avail of tax deduction benefits on loans under section 80C (principal repaid) and section 24 (home loan interest payment) by filing Form 12BB.
Key things to remember:
- If the home loan has been availed jointly, claim the interest deduction proportionately.
- If the home loan has been taken from a lender other than a bank, i.e., from friends or relatives, you can claim the interest payment as a deduction under section 24. It is subject to submitting an interest certificate from the person to whom the interest has been paid. However, in such cases, the principal repayment is not eligible for deduction under section 80C.
- Leave Travel Concessions or Allowance (LTC/LTA)
When salaried employees are paid an allowance for covering travel expenses (LTC or LTA) through their wage package, they can avail of LTA tax exemption.
Key things to remember:
- LTA can only be claimed if it is a part of the CTC (cost to the company).
- LTA can be claimed for the employee and their spouse, children, dependent parents, and dependent brother and sister.
- LTA or LTC can be claimed twice in a block of four years.
- If one LTA has been claimed in the previous block of 4 years, a second LTA can be carried forward and used in the next block. However, this carry forwarded LTA must be claimed in the first year of the next block.
- It is applicable in the case of domestic travel only and not for international travel.
- House Rent Allowance (HRA)
Employers provide HRA to employees to cover the expenses incurred towards rented accommodation. HRA is a fixed percentage of an employee’s salary.
Key things to remember:
- HRA tax exemption can be claimed only when HRA is a component of CTC.
- If HRA is not a part of CTC and the employee lives in a rented house, the tax benefit can be claimed under section 80GG.
- A rent receipt is required if the monthly rent is over INR 3,000.
- If an employee resides with their parents and pays rent to them, parents must show the same in their income when filing ITR.
- Always submit genuine rent receipts. Submitting fake rent receipts can invite legal trouble.
- Even if the employer does not request a rent agreement, it is wise to have a formal rent agreement printed on stamp paper for records.
- Other Income
Deductions covered under the following sections of the Income Tax Act are eligible for tax exemptions and can be entered in Form 12BB:
- Section 80C and 80CCC – Premium paid for life insurance, annuity plan, investments made in ELSS (Equity-linked Savings Scheme), funds, NPS (National Pension System), PPF (Public Provident Fund), etc.
- Section 80CCD – If you make any additional contribution over and above the minimal contribution to your NPS account, you can claim tax benefits under this section.
- Section 80D – Premium on health insurance scheme.
- Section 80E – Interest paid on education or student loan.
- Section 80G – Donations made to specific charitable organisations or NGOs.
- Section 80TTA –Interest earned from the deposits held in savings bank accounts.
Filling out Form 12BB – Significance and Tips
We are aware of the significance of paying our taxes as taxpayers. We must also be aware of the several legal provisions available to us for reducing the taxes we must pay. Every cent of your salary matters at the end of the day. Therefore, if the government lets you claim deductions and save money on taxes, why not do so? Furthermore, the HR department can use staff attendance and payroll management applications to streamline the process of payroll taxation.
Remember that Form 12BB can be used for claiming tax deductions on allowances that are a part of the CTC structure. You just have to keep a few documents ready with you.
- For instance, you can obtain your certificate of interest and loan repayment by visiting your bank.
- Record all your receipts for expenses, investments, and self-employment tax payments. These may include rent receipts, tuition receipts, and receipts for LIC premiums.
- You may make investments as planned without disrupting your cash flow with a well-prepared approach.
- Do not wait until the last month to make your investments; spread them throughout the year.
A salaried employee must submit an investment statement to their employer to get tax advantages or rebates on investments and expenses. An employee declares their claimed tax deductions on Form 12BB. Knowing how to complete the investment declaration correctly makes it simple to organise and submit your documents by the deadline.
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- Is it possible to declare a home loan and HRA together?
Yes, income tax exemption can be claimed for HRA (House Rent Allowance) and home loan repayment. It is possible to claim tax benefits if a salaried individual resides in a house on rent and is servicing a home loan on another property – even if both properties are in the same city.
- How is HRA calculated?
HRA, also known as House Rent Allowance, is financial help provided by the company to an employee to assist with housing expenses. Calculating HRA is based on the employee’s pay. The city where the employee lives also influences the amount of HRA paid out.
The lowest of the following three will be taken into account for calculating HRA:
- The amount received as an HRA from the employer
- Actual rent paid (minus 10% of the pay)
- For those living in a metro city, 50% of the basic pay, and for those in non-metropolises, 40%
- Who is responsible for deducting tax on salary under Section 192 of the Income Tax Act, 1961?
Under Section 192 of the Income Tax Act of 1961, every employer paying a salaried income to an employee is responsible for deducting tax on salary. However, it should be noted that the salary should be more than the basic exemption limit determined as per the Income Tax slabs.