The new financial year is almost here - and it's time for payroll admins to collect and verify Proof of Investments (POI) from their employees. The admin is the person with the most responsibility here. Your company trusts you to audit the POIs and make relevant deductions.
Things are bound to change with the new tax slabs introduced in the 2020 budget. But for now, admins need to verify the scores of investment proofs submitted as per Budget 2019. While greytHR makes collecting POIs a breeze, they have to be manually verified sometimes as per their organizational rules.
For general reference, greytHR Income tax experts have built a best practices checklist on the investment document verification process. We will talk about employer verification tips for the most popular POIs.
- HRA - House Rent Allowance
- Housing Loan EMIs (Loss on Property)
- Children Education
- Life Insurance Premium
- Mutual Funds (ELSS)
- 80D Medical Insurance
- PPF (Public Provident Fund)
1. HRA - House Rent Allowance
Most employees are aware of HRA as it is a part of their salary structure. This can be claimed as a deduction.
It is important to remember that the relief amount available to the taxpayer is the least of the following:
40% of Basic Salary (non-Metro) / 50% of Basic Salary (Metro)
House Rent Allowance (HRA received)
Actual Rent paid minus (-) 10% Basic Salary
Documents to collect
Received rent agreement and Rent Receipts
Best Practices for HRA Proof of Investment
- The rent receipts can be in the form of Monthly/ Quarterly/ Consolidated receipts of the total rent received
- If the rent paid is greater than 1 Lac per year, It is mandatory to get the owner’s PAN
- If there are two owners of the property, it is a good practice to take both PAN.
- In the case of incremental rent - it is better to take both the owners’ PAN
- For e.g., in case the employee changes houses in the middle of the year. If payment to one owner is not greater than 1 Lac but it exceeds INR 8,333/- per month - it is advisable to keep both the PAN.
2. Housing Loan EMIs (Loss on Property)
If an employee is paying EMI for a housing loan, it has two components - principal (which comes under section 80C with an overall cap of Rs.1.5 lac/annum.) and interest on the loan (which comes under section 24). An exemption of up to Rs. 2 lakhs/annum can be claimed on the interest paid for the year. Also, check the provisions of Section 80EE for additional deduction of Rs.50,000.
Documents to collect
- Certificate from the bank - mentioning total Principal and Interest paid
- Additional document by employee declaring % of ownership in the property
Employer Best Practices for Housing Loan EMI
- In the employee declaration, there must be a clear indication of co-obligants, borrowers and share of ownership.
- The % ownership should match the original legal deed of the property.
3. Children Education Fees
Employees paying any sum/ fees towards the education of their children can claim tax deduction under Section 80C. The upper limit for exemption overall u/s80C is 1.5 Lakh per parent.
Documents to collect
- School Fees Receipts.
Best practices for Employer Verification of Children Education
- “Tuition Fees” should be clearly mentioned in the fees receipt
- Employees can claim a deduction for all tuition Fees Paid, including Nursery.
- The deduction is available only for full-time education courses
- The institution, college or university must be situated in India, even if affiliated with a foreign university.
4. Life Insurance Premium
Documents to collect
- Premium Paid Receipts
Tips for Employer Verification of Life Insurance Premium
- The employee can also claim an exemption for their family - which includes only spouse and children.
- Exemption for the entire premium amount, including GST is allowed
- Payment should have been made by the employee only. In the “Paid By” section of the premium paid receipt, the employee's name should be clearly mentioned.
5. Mutual Funds (ELSS):
Mutual funds that fall under the ELSS scheme are another popular carrier for tax exemption under section 80C.
Documents to collect
- Investment Declaration Statement
Tips for Employer Verification of ELSS Statement
- It is important to remember that there are various types of mutual funds, and the exemption is valid only for ones that fall under the ELSS scheme.
- In the scheme document and the statement as well, it falls under section 80C, for which exemption is allowed.
6. 80D Medical Insurance
Every individual can claim a deduction under Section 80D for their medical insurance and medical expenses of senior citizen dependent parents.
Section 80 D exemption covers the insurance taken for parents as well. There are different exemptions available for different age groups, which can be found as under:
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Tips for Employer Verification of Medical Insurance Proof
- Payment should have been made by the employee only. In the “Paid By” section of the premium paid receipt, the employee's name should be clearly mentioned.
- The exemption can only be claimed as per the age rule limits.
- Medical bills for senior citizen parents can be claimed under 80D if there is no active insurance plan in their name
- 80D also covers “Preventive Health Checkups” - The important point to note in this proof is that the bill has to explicitly say “preventive health checkup”. It should not be a procedure after an ailment has happened.
- If the bills say “Diagnostic health check-up” - it is a good practice to get a declaration from the employee saying it is a preventive one.
- There is no benefit for 80D if paid in cash, other than for preventive health check-ups.
- For other types of proofs under 80D, employers are advised to take an undertaking from the employee that they have paid it in electronic form (NEFT, IMPS, etc.)
7. PPF (Public Provident Fund):
Public Provident Fund (PPF) was introduced in India in 1968 with the objective of mobilizing small savings in the form of investment with a return on it.
Individuals who are residents of India are eligible to open their account under the Public Provident Fund and are entitled to tax-free returns for up to 1.5 Lacs/Year u/s 80C.
Documents to Collect
- PPF Account Statement/ Passbook Scan
Tips for Employer Verification of Proof of PPF Investment
- Either statement/ which has details such as account number and number/ Passbook scan is used
- Whatever the Proof of Investment employee provides should clearly mention their name, account number and the transfer record showing the amount claimed along with the date of Investment.
How do you practice the verification of investment proofs at your organization? Would you like to know more about other types of proof verification? Feel free to drop a comment below and let us know! To educate your employees further about POI, find common mistakes and submission tips here.
