ITR Filing: Why Submitting Investment Proofs On Time Is Now More Important Than Ever

Several salaried taxpayers faced alerts from the Income Tax Department in December 2025 after discrepancies were detected between deductions claimed in their income tax returns (ITR) and the salary data reported by employers. These alerts, sent via email and SMS, asked taxpayers to review and revise their returns where exemptions or deductions claimed did not align with system records.

A majority of the flagged cases involved situations where taxpayers claimed deductions or exemptions directly in their ITR that were not reflected in Form 16. This typically happens when employers deduct tax assuming fewer deductions, while employees later claim a wider set of benefits in the return, resulting in large refund claims. Such refund-heavy returns are

more likely to attract automated scrutiny.

This is why it is important to submit investment declarations and proofs to employers within the prescribed timelines.

What Is An Investment Declaration?

An investment declaration is a provisional statement submitted by employees at the beginning of the financial year, outlining planned tax-saving investments and expenses. Towards the end of the year, employees must submit investment proof for these claims. Employers use verified proofs to compute taxable income accurately and deduct the correct amount of tax at source (TDS).

Why Timely Submission Matters?

Many employees treat the proof-submission process in January or February as a routine HR formality. However, this step plays a crucial role in ensuring that Form 16 accurately reflects eligible deductions and exemptions. When employers factor these into payroll calculations, TDS is adjusted during the year, reducing the likelihood of mismatches and large refunds at the time of filing returns.

When Form 16 mirrors the claims made in the ITR, the chances of automated alerts or follow-up queries are significantly lower.

Proofs Employees Should Prioritise

According to chartered accountant Himank Singla, the tax department is increasingly focusing on high-value refunds and claims showing data inconsistencies. Commonly scrutinised items include: House Rent Allowance (HRA), particularly for high rent and non-metro city thresholds, deductions under Sections 80C, 80D, 80E and 80G, interest on housing and education loans, Leave Travel Allowance (LTA) and exemptions such as leave encashment.

Most employers are strict about HRA claims. Employers usually require rent receipts, landlord PAN details (mandatory if annual rent exceeds Rs 1 lakh), and sometimes a rent agreement. Due to this burden, some employees skip declaring HRA to employers and claim it directly in the ITR, leading to mismatches.

The verification process today is largely system-driven. Claims are cross-checked against multiple sources, including Form 16, Form 26AS, AIS and TIS statements, employer payroll filings, and third-party data from banks and insurers. Cash-based rent payments and incomplete disclosures attract closer scrutiny.

Importance Of Maintaining Records

Employees are expected to maintain documentary evidence for all claims, regardless of whether employers insist on proofs. This includes loan interest certificates, insurance policy documents, PPF and ELSS statements, rent payment records, and donation receipts with registration details. ITR forms now require granular disclosures such as policy numbers, lender information and landlord details, making mismatches easier to detect through system-based verification.

Why Employers Ask For Investment Details?

Employers collect investment declarations and proofs to estimate final taxable income and deduct TDS evenly over the year. If proofs are not submitted or investments are not made as declared, employers are required to recalculate tax liability and recover additional tax in the remaining months of the financial year.

So, employees need to ensure that they cover all the areas eligible for tax benefits in their investment declaration form. Moreover, investment declarations are not limited to Section 80C benefits. They also include medical insurance premiums under Section 80D, donations under Section 80G, and housing loan principal. Accurate disclosure ensures correct tax deduction and avoids last-minute adjustments.

For Financial Year 2025–26, aligning investment declarations, proof submissions and ITR claims remains the simplest way for salaried taxpayers to avoid automated flags and ensure smooth tax return processing.