Failed to Submit Investment Proofs Within the Deadline? Here’s What Happens

The time to submit relevant investment proofs to avail deductions and reduce taxes withheld by the employer has very much arrived.

Usually, at the beginning of a financial year, an employee informs the employer about the proposed declaration related to investments, depending on which Tax Deducted at Source (TDS) is deducted for the first three quarters, it is important to note that in the last quarter, that is January to March, employees are required to submit proofs of such investments to their employers. 

Typically, TDS is a system in which tax is deducted at the point of origin of income. In the case of employment, employers deduct TDS from the salaries of their employees and deposit this amount with the government on behalf of the employee.

So, what happens in case investment proofs are not submitted as per the deadline or are scheduled later in February or March? 

In case the investment is scheduled in February or March, an employee could ask the employer for a second time frame to accept the relevant proof. However, in case the necessary investment proofs are not submitted within the stipulated time, it will result in higher tax withholding on the salary income.

Generally, employers allow employees time until the end of the financial year, which ends on March 31, to submit all necessary proofs. The calculation of TDS for the months leading up to February depends on the investment declarations that an employee makes. 

Meanwhile, for the month of March, TDS is computed depending on the investment proofs submitted and approved by the employer. Failure to submit these investment proofs could result in a higher TDS deduction during March.

Any expenditures incurred after March 31 are not deemed eligible for deduction in the ongoing financial year. So, planning your expenses and investments strategically remains crucial while ensuring that you submit the requisite proofs before this deadline to qualify for the deductions.

So, will an employer deduct TDS even if an employee says they will make investments in the coming months? 

In such a scenario, an employer is responsible for deducting TDS from an employee’s salary, even in case the employee conveys that they will submit on the due date in the coming months. 

An employer is likely to deduct TDS based on the declarations submitted by employees in the first two or three quarters of the fiscal year. However, an employee will need to submit actual proofs during the last quarter, and the final withholding shall be based on such proofs. 

Primarily, the responsibility for deducting taxes and depositing them with the government falls on the employer. In case an employee does not provide the relevant investment proofs within the stipulated time, the employer is required to deduct TDS at a higher rate, as applicable. The responsibility to deduct TDS is not contingent on the future submission of investment proofs. 

Moreover, the declaration remains different from investment proof. At the beginning of the financial year, an employee provides a declaration which outlines all deductions they expect to claim throughout the financial year. However, by the fiscal year’s end, specifically on March 31, employees are required to provide investment proofs to the employer, validating the deductions declared at the beginning of the financial year.

In a scenario where investment proofs are not submitted on time, employees have the option to incorporate eligible deductions directly into their income tax return (ITR), seeking a refund for any surplus TDS deducted by the employer due to failure in submitting investment proof. 

However, an exception is provided in the case of leave travel allowance (LTA), as its deduction is purely managed by an employer. 

A point to note is that in case of choosing to bypass submission to the employer and directly claiming deductions in the ITR raises the chances of a possible tax query from the income-tax (I-T) department. Then, employees must submit all requisite proofs directly to the I-T department.