Since the new financial year has started, your employer will very soon ask you to declare your tax-saving information for the year. The tax-saving information that you’re asked to provide could be in the form of investments, expenses or payments that you will make between 1st April 2016 and 31st March 2017.
Your employer asks you for this information because they want to deduce your taxable income at the end of the year. Your employer will deduct tax at source (TDS) from your salary based on the tax-saving declarations you make.
What you should do when you’re asked to declare your tax-saving information is make a prediction of what your income is going to be, how much tax you will have to pay on it and how much tax you can save.
Our Tax Calculator can help you here.
Once you have a rough estimate of how much tax you can save, you can declare investments that you would make or expenses you would incur. Do note that you don’t need to do exactly what you declare. You can invest lesser than you declare if your expenses end up being higher. The only thing your employer wants to know is how much you will save, not exactly where you save.
A good thing to do is invest as much as you declared. Let your employer assume that you will save maximum taxes so that they deduct less TDS from your salary. You should then try to meet the declared amount by investing as much. But even if you’re falling short in December or January when an employer typically asks for investment proofs, you can use the time till 31st March to fulfill your declared obligations.
What is important to note as far as investment declarations are concerned is that what you declare is not cast in stone. You can change the investment avenues you mentioned and even the amount. But it makes sense to declare the maximum you can invest to save taxes because it puts you in the best position to meet that amount and pay less taxes.
Your tax-saving declarations can include investments like ELSS funds, PPF, NPS or expenses like life insurance premium, medical insurance, home loan interest or payments like children’s school tuition fees, house loan repayment, house rent.
To learn more about where and how you can save taxes, read our comprehensive tax-saving guide.
Since the tax season has started, it is good to e-file as early as possible for AY2016-17. It takes less than 10 minutes on clearTax.