A tax declaration is the fulfillment of a natural person’s commitment to pay taxes or a legal entity’s obligation to remit taxes to a tax authority. These types of declarations can be made through various channels, such as the internet or a paper file. Often, the declaration process includes a verification step whereby the taxpayer is required to submit proofs for investments and expenses.
Salaried employees are required to declare their tax-related investments and expenses every year via Form 12BB. These declarations are based on the information shared by the employee and their employer, which helps in calculating the tax deducted at source (TDS) from their salaries.
Form 12BB mainly asks for the list of tax-saving investments and expenses that an employee plans to make in the current financial year. The declaration is important because it helps the employer calculate and deduct TDS proportionately from an employee’s salary payments. The employer can only do this if they have the details of the employee’s investment and expense obligations, as mandated by Section 192 of the Income Tax Act.
The declaration can include details of investments and expenses such as tuition fees, interest paid on housing loans for a self-occupied property, stamp duty or registration charges for the purchase of a house or flat, contribution to National Pension Scheme (NPS), contribution to Sukanya Samriddhi Account and the amount of HRA that an employee has been allocated. It also covers other expenses such as those related to medical treatment and maternity leave.
Employees must submit proofs for the investments and expenses that they have declared to their employers by a set date later in the year. If they fail to do so, their employers will have no choice but to recover the shortfall from their salaries in the remaining months of the year.
Using payroll automation software, such as RazorpayX Payroll, makes the process of submitting tax declarations easier and simpler for both employers and their employees. It reduces the time and effort spent on manually collating investment proofs and sending them to the concerned team for verification. Moreover, it ensures that all the tax-related information and documents are sorted properly and are in the correct format required by the respective tax authorities.
Employers can automate their tax declarations by integrating the solution into their existing systems. This is a more secure and efficient way to handle the entire process. It helps to avoid errors in data entry, which can be caused by human error. For instance, if an employee enters the wrong PIN or misses out on some information, the system will alert them immediately so that they can rectify it before submission. It also helps to validate tax data by checking it against the country’s statutory database and reduces compliance risks. It also ensures that the declaration is filed on time by ensuring that the relevant tax forms are received by the tax authorities in the right format and within the stipulated deadlines. Steuererklärung