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All-in-one HR platform · v2.0
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All-in-one HR platform · v2.0
14-day free trial · No credit cardhello@HrMagix.com
Under Section 192, the employer estimates each employee's tax for the year and deducts it in instalments. The estimate depends on two things the employee tells you: which tax regime they choose, and which deductions and exemptions they expect to claim.
The investment declaration process collects that information twice: once as an estimate at the start of the year, and once as evidence towards the end. This guide covers both.
01
Ask every employee to choose their tax regime and declare expected investments and claims in the first weeks of the financial year, and every new joiner in their first week. Give a clear closing date.
Explain the default. If an employee does not choose, TDS is computed on the default regime under the current law. Check the current position each year, because the default and the rates are set by the Finance Act.
Watch for itAsk for the regime choice separately from the investment declaration. Employees who are on the new regime have little to declare, and mixing the two causes confusion.
02
Declarations are made in the format of Form 12BB under Rule 26C, which covers house rent, leave travel, interest on housing loan, and deductions under Chapter VI-A such as Section 80C. Which items are available depends on the regime the employee has chosen.
03
Employees' plans change. Decide whether declarations can be revised during the year, and how often. Allowing revisions keeps TDS closer to the final figure; limiting them keeps payroll simpler. Whatever you decide, apply the rule to everyone.
Changes to the regime choice during the year follow the tax rules for salaried employees, which have changed in recent years. Check the current position before allowing a mid-year switch.
04
Set a proof submission window late enough that employees have made their investments, and early enough to verify everything before the last salary runs. Publish the list of acceptable evidence for each item.
05
Recompute each employee's projected tax using verified figures only. Items not proved are removed, and the shortfall is deducted from the remaining salaries of the year.
Keep the proofs and your verification record. They support Part B of Form 16 and are what you produce if the deduction is questioned.
Every guide ends here rather than in a summary. If a line below is not true yet, that is the next thing to do.
At the start of the year employees choose a tax regime and declare expected investments and claims. Towards the end of the year they submit proofs, which payroll verifies before computing the final TDS.
The format under Rule 26C in which employees give details of claims such as house rent, leave travel, housing loan interest and Chapter VI-A deductions to their employer.
The undeclared or unproved items are excluded, and the resulting extra tax is deducted from the remaining salaries of the year.
Most of the deductions in Form 12BB are not available under the new regime, so they usually have much less to declare. Check which items remain available under the current rules.
The checklist above is generic by necessity. Bring your own structures, states and rota and we will tell you which lines are already true and which are not.
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