Payroll

What Employers and Employees Must Know About Proof of Investment (POI) in India

Proof of Investment (POI) are documents that show an individual’s investments. These need to be provided to the employer during the tax-saving season in India. It is usually during the end of a fiscal year, which is, March 31. POI is a critical part of the payroll processing of any organisation. The finance team is typically responsible for the collection and verification of the receipts and proofs which are presented in the IT Declaration.

Now, these are used to calculate an employee’s tax and then submit the levied tax to the government. If excess tax is deducted, then one can claim the amount back by filing for a refund in the ITR. This article tells you more in detail for an informed decision.

Importance of POI

The employer is bound to reject claims that are not backed by proof. It can also happen if the documents are not authentic. The employee may be blamed for making false claims as well which can impair their reputation and invite penalties. All of these can also lead to lower take-home salary and excess tax payments causing massive dissatisfaction.

Sharing savings interest or FD interests with the employer can help. You can provide ‘proposed investment’ proofs for February and March as well. There is also the facility to claim later, at the time of filing your tax returns, in case your declaration proofs have not been submitted to the employer.

What is Investment Declaration

You, as an employee, must give an accurate idea of your income, investments, and tax-saving efforts, if any, supported by proper proof of investment for income tax. An investment declaration helps your employer deduce the correct amount from your salary. This can be done by considering:

  • house rent allowance (HRA)
  • medical reimbursements
  • leave travel allowance (LTA)
  • different types of loans and
  • other entitlements

So, make sure you are personally aware of these numbers to avoid any errors. Know that the payroll department will expect the proofs and tax-related details in and around December up to January. It helps them to make a thorough comparison with the data that is already present. The calculations take approximately 2 to 3 months to settle completely. Take this activity seriously and try to cooperate to avoid the following.

Consequences of Improper Investment Declarations

You may miss submitting proofs for a plethora of reasons. For instance, the bank has sent the car loan certificate late or you may have misplaced the papers did not request fresh ones yet. The most common reason is usually the official tax savings investment proof submission deadline slipping out of your mind. In these cases, you are liable to pay a high tax.

The exemptions that your employer would have given in Form 16 if the proofs were presented on time, can be claimed during e-filing. This can include Section 80C with no investments like your PF contribution share, medical check-up bills, tuition fee of your child, principal repayments on the loan, stamp duty or registration fee and life insurance premiums.

List of Tax Savins Options in India

There are several sections under the Income Tax Act, 1961where you can invest and then save taxes with deductions. Here’s a look:

National Savings Scheme (NPS): You can claim a tax benefit under Section 80 CCD (1) with a limit of ₹1.5 lakhs under Section 80CCE if you are an NPS subscriber.
Public Provident Fund (PPF): Withdraw this long-term investment after 15 years or after 6 years. An investment can be made here under Section 80C.
Tax Savings Bank Deposit: An investment can be made for 5 years for deductions of ₹1.5 lakhs under Section 80C of the Income Tax Act, 1961. This can help you earn up to 6-7% returns annually.
ELSS Fund: You are eligible to save up to ₹1.5 lakhs per year under Section 80C of the Income Tax Act,1961.
HRA: Deductions can be claimed if the rent amount is higher than ₹1,00,000. This will be under Section 80GG.

Tax investment proofs can also be in the form of valid receipts of donations (under Section 80G) and for severe disability (under Section 80U) with medical certificates from a government hospital along with Form 10-1A issued by a competent doctor.

Submit your stamped deposit receipt for the amount paid in a fiscal year. A copy of the passbook with clear references to the PPF account is also accepted. Remember that no employee should have to pay extra charges if the tax returns are filed on time as per Section 234F of the Income Tax Act.

Shalini L

One of the prime contributors for this blog, Expertise in Staffing and Recruitment, Content Strategist by Profession. A Music Lover & Traveller by Choice.

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