A tax declaration is the completion of documentation that calculates an entity or individual’s income earned. It also determines the amount of taxes that must be paid to government organizations and potentially back to the taxpayer.
There are several ways to make your tax declaration. The most popular way is through the clearance model. This involves implementing solutions to automate and establish communications with the tax agency.
Income
At the start of every financial year, employees need to submit a tax declaration via Form 12BB to their employer. This declaration is based on the tax-saving investments and expenses that an employee plans to make in the year. Employers then deduct taxes at source (TDS) proportionally from the salary payments based on these declared details.
It’s important for employees to provide accurate and complete information in their tax declarations. If they don’t, their employer may deduct more taxes than they should. This can lead to a delay in receiving a refund and other issues.
Using payroll automation, employers can help their employees submit their tax declarations by collating online Form 12BB, income disclosure information and documentary proofs in one place. This allows the payroll team to verify and approve the submissions easily, quickly and accurately. This also makes the entire process less time-consuming and more efficient for everyone involved.
Expenses
Expenses tax declaration is the amount that a company or individual pays to a government body on its income earned during a certain period of time. It’s a liability on the company’s balance sheet and is calculated by multiplying its taxable income by the current tax rate. The tax rate can be federal, state, or local.
Various expenses qualify as business-related, including mileage, compensation paid to employees, and equipment purchases. However, the expense must be both ordinary and necessary. Some of these expenses can be classified as ATL deductions, while others can be classified as BTL deductions.
It’s common for the amount of tax a business recognizes to differ from its actual tax bill. This is due to differences between standard accounting techniques and the tax code that determines taxable income. The difference between tax expense and tax payable is reported on the company’s balance sheet as a deferred tax liability until it is settled in the future.
Investments
When you invest in assets that may produce future income, you must keep records of the cost basis and any expenses properly allocable to your investment. This information is used to calculate your net investment income. It’s also used to determine the capital gains tax when you sell investments.
At the start of each year, employees declare their proposed (existing) investments like life insurance premiums, tuition fees, home loan principal, PF, PFD, Mutual Funds ELSS and NSCs for tax savings. These are then considered by the employer when calculating and finalising the employee’s taxable salary.
If the actual proofs submitted do not tally with the declaration made then the employee has to bear a large tax liability in the form of excess TDS deducted by the company. Verifying all of these expenses and investment proofs across 100s of employees takes a lot of time and effort for an admin. A full service payroll provider such as Asanify automates this process by using a combination of AI and manual checks to ensure 100% accuracy.
TDS
A tax declaration is a document that certifies the satisfaction of a commitment to pay a certain tribute by a natural or legal person. It is presented to the relevant body of public administration. The presentation of the declaration supposes the start of management of the particular file.
During the beginning of the financial year, employers request investment declarations from their salaried employees. The purpose is to ascertain the tax liability of the employee and deduct taxes at source (TDS) every month. Employees are required to submit documents as proof of investments and tax-saving investments such as Section 80C, home loans, medical expenses, HRA, etc.
This process is tedious for both employees and employer. It can be simplified using payroll automation software. For example, RazorpayX Payroll can automatically collect investments and proofs from employees and submit them to the government. This helps reduce manual errors and time spent on verifying the data. It also simplifies the communication and information exchange with the tax authorities.Steuererklärung
