What is the difference between declared, verified & promissory amounts?
- Declared Amount: The amount that you intend to invest to gain income tax relief by lowering your taxable income through government-authorized exemptions. Usually, at the start of the financial year, your organization will ask you to declare this amount. You will not be required to submit any proofs at this stage, as this will be based on your projected investments.
- Verified Amount: The amount that you have actually invested and have the proofs/receipts for. This is declared when your organization asks you to submit the proofs for the declarations made. Usually, this will happen in the months of December to March (but could be earlier depending on your Company’s option).
- Promissory Amount: The amount that will be invested by you but you will be receiving the receipt for later (for example Feb / March rent and LIC premium to be paid in the upcoming months)
- In April, the employee declares LIC investment of Rs 50,000. At this time no proof is required, and the Rs 50,000 is considered as an exemption against the taxable income
- In January, the employee is required to submit proof for the Rs 50,000, without which the Rs 50,000 will be added back to his taxable income, and his tax liability will go up for the remaining 3 months
- However, the employee only has proof for Rs 40,000, as he will be investing the balance of Rs 10,000 only in March; in this case, the employee submits proof for Rs 40,000, and declares Rs 10,000 as a promissory amount (the proof for which will be submitted before the March payroll process); if approved, the employee still gets a Rs 50,000 exemption under LIC
- In March, the employee is required to submit proof for the balance Rs 10,000 amount, failing which, his taxable income will go up by Rs 10,000, and he will have to pay tax on the Rs 10,000 amount