As the financial year draws close, employees across India prepare for the tax season. Practical advice every employee receives early on in their career is that investment is one of the best ways to reduce the burden of taxes on income. For employers, factoring in investments is an essential part of payroll management.
In this blog, we will explore the investment declaration procedure in India, the impact of changes in the country’s tax regime, and most importantly, how advanced payroll software provided by reputable payroll processing companies in India leverages technology to streamline the investment declaration process, maximizing tax benefits for employees.
What is Investment Declaration?
Between December and mid-January, employers typically require employees to submit their investment declarations, i.e., a statement of any investments they plan to make that year, so that the Tax Deducted at Source (TDS) can be calculated for the upcoming financial year.
Employees must submit proof of their investments at the end of the year. Taxes are then adjusted according to the tax exemptions and deductions they are entitled to, which are capped at INR 1,50,000. Additional deductions include employee contributions to a government-recognized pension scheme (up to INR 50,000) and an additional 10% of the employee’s salary when the employer contributes to the National Pension Scheme (NPS).
Investment particulars are submitted on Form 12BB, which employees receive at the beginning of the year to update as the year progresses. By April or May, employees are issued Form 16 to capture investments made for that year.
Why is Investment Declaration Important?
Investment declaration encourages employees to save and grow their money rather than subjecting all their income to taxation. Employees can also save on taxes by leveraging exemptions under other forms of deductions like housing (both principal and interest paid), education loans, construction of property, and medical insurance premium payments.
What Role Does Payroll Software Play in Investment Declaration?
Payroll software, built on advanced technologies like AI and Machine Learning, helps employers handle the time-sensitive and labor-intensive task of computing individual tax deductions based on employee investment declarations.
The software makes it convenient to upload, save, and track proof of investment, a critical aspect of the tax season that can be error-prone and time-consuming if done manually. With a user-friendly interface that employs chatbots, virtual assistants, and gamification tools, employees can easily upload their investment details within the time frame set by the employer.
Payroll software captures the entire range of deductions and exemptions available under both tax regimes, allowing employees to compare benefits and choose the higher tax-saving option, thereby maximizing their financial benefit.
2024 Payroll Software Trends – How Will It Impact Investment Declaration?
Here are some 2024 trends in payroll management that are expected to enhance the investment declaration process:
1. Greater Reliance on AI - Payroll software companies will use generative AI to analyze employee cohorts and place them in the correct tax bracket. AI-enhanced payroll software also creates virtual assistants in the form of chatbots, improving the accuracy of tax filing and declaration.
2. Migration to Cloud Computing- Payroll software companies will increasingly move to the cloud, making payroll functions cheaper and more flexible. Cloud computing will enable real-time updates and compliance with country-specific tax regulations. This is particularly beneficial for small businesses that may not have the resources to set up an in-house payroll function.
3. ntegration with HR Functions - Payroll managers recognize the need to integrate payroll data with other HR data. This keeps all employee data secure in one place and allows managers to link performance tracking with incentivization policies. Employees benefit from payroll capabilities like pay advances and pay cards, and can manage their own payroll preferences, including investment and deductible details, paycheck views, taxable income calculations, and email alerts.
At TopSource Worldwide, our experienced team of professionals is familiar with the latest laws and regulations related to payroll requirements across multiple industries. We can help you maintain all forms of statutory compliance. With presence and expertise in over 180 countries, working across 24 time zones, we are your global partner for business expansion, delivering the right solutions that enable your growth.
Contact us today for more information on how our payroll software can help streamline your investment declaration process.
