Understanding the Need for Investment Proofs

As the financial year 2024-25 unfolds, salaried employees are being prompted by their employers to furnish documentation of their tax-saving investments and expenses. This step is crucial for those aiming to reduce their tax liability and prevent the full deduction of taxes at source from their salaries. While the deadline for submission typically extends until March, early submission is advisable to ensure that employers adjust the tax deductions accordingly.

According to Prakash Hegde, a Chartered Accountant, only employees under the old tax regime are required to submit investment proofs to claim exemptions and deductions. Those under the new tax regime are exempt from this requirement, as most exemptions and deductions are not applicable.

Key Deductions and Required Documentation

The Income Tax Act, 1961, under the old tax regime, offers various exemptions and deductions that can significantly lower an individual's taxable income. For instance, for HRA exemptions, tenants must provide rent agreements or receipts, with landlords' PAN details required for annual rent payments exceeding Rs 1 lakh. Section 80C allows deductions up to Rs 1.5 lakh for specific investments, including PPF, EPF, and life insurance premiums. Additionally, Section 80D offers deductions for health insurance premiums, and Section 24B provides deductions for housing loan interest payments.

Flexibility and Considerations in Tax Regime Selection

While the tax regulations permit switching between the old and new tax regimes during ITR filing, organizations often discourage mid-year changes due to the administrative complexities involved. It's essential for taxpayers to file their returns by July 31, 2025, to retain the option of choosing between the tax regimes. Maintaining comprehensive documentation is crucial for addressing any queries from tax authorities during the verification process.