To carry out the Budget 2024 plan about adjusting TDS and TCS from other sources against salary TDS, the Central Board of Direct Taxes (CBDT) has released a new form called Form 12BAA.
According to a press release from PIB on October 17, 2024, the CBDT has updated the Income-tax Rules, 1962, with Notification No. 112/2024. This introduces Form No. 12BAA, which employees must fill out to provide information to their employers as required by tax law. Employers will use this information to calculate the TDS to deduct from salaries.
You can refer to Notification No. 112/2024, issued by the income tax department on October 15, 2024, which amends the income tax rules and introduces a new form called Form 12BAA.
Employees will use Form 12BAA to inform their employers about tax deductions from other sources, like fixed deposits, insurance commissions, dividends from stocks, or taxes collected when they buy things, such as a car or foreign currency.
How can the new Form 12BAA help employees reduce the tax deducted (TDS) from their salaries?
Employers usually take TDS from salaries based on what employees declare about their investments and expenses.
However, they haven’t accounted for taxes paid on other sources of income. The new Form 12BAA from the CBDT will change this.
By using the new Form 12BAA to inform their employer about TCS collected and TDS deducted, employees can lower the tax deducted from their salary.
This will help them improve their cash flow and have more money to spend or save.
The CBDT announced the new form on October 15, 2024. The new law allowing employees to inform their employers about TDS and TCS from other sources took effect on October 1, 2024.
Employees can now share information about TDS from additional income or TCS from major purchases. Before this, there was no clear way to do this.
The new form from the income tax department makes it easier for employees to provide this information to their employers.
An employee who wants to reduce the tax deducted from their salary and increase their take-home pay can use Form 12BAA to let their employer know about taxes deducted from other income or expenses.
Form 12BAA is similar to Form 12BB, which employees use to declare their investments so TDS on their salary can be adjusted.
The CBDT has revised Form 12BB so that employees can share more details about income beyond their salary, report losses from house property with proof, and claim TCS credit through their employer.
These updates aim to reduce tax evasion and make it easier to process income tax returns (ITR).
What Do Income Tax Laws Say About Tax Deductions from Salaries?
According to income tax laws, employers must deduct tax from employees’ salaries under Section 192 of the Income Tax Act. The amount of tax deducted depends on which tax plan the employee chooses: the old tax regime or the new one.
Employees need to submit a declaration about their investments to help lower the tax deducted.
- Old Tax Regime: Employees can claim various deductions (like those under Section 80C or 80D) and exemptions (like house rent allowance or travel allowance) to reduce the TDS from their salaries.
- New Tax Regime: This plan allows a standard deduction from salary and includes the employer’s contributions to the NPS to lower TDS.
What Did the 2024 Budget Say About Claiming Credit for TCS and TDS?
In the 2024 Budget, the government announced changes to make it easier for salaried employees to claim credit for TCS (tax collected at source) and TDS (tax deducted at source).
The Budget stated that employees should be allowed to consider TCS when calculating the tax to be deducted from their salaries.
This would help prevent cash flow problems. It also mentioned that all TDS should be included when figuring out tax deductions from salary.
If TCS isn’t considered, employees have to claim it back as a refund, which complicates the process.
To simplify this, they plan to update the rules to include any tax collected or deducted under certain tax chapters when calculating salary deductions.
Frequently Asked Questions (FAQs)
What is Form 12BAA?
Form 12BAA is a new form created by the CBDT to help employees disclose additional sources of income and the taxes deducted or collected on that income to their employers. It enables employees to report deductions from different income types, not just their salaries.
This includes earnings from fixed deposits, insurance commissions, dividends from stock investments, and taxes paid on significant purchases. By using this form, employees may lower the total tax deducted from their pay and increase their take-home salary.
How Does Form 12BAA Help Reduce TDS on Salary?
Before Form 12BAA was introduced, employees were unable to inform their employers about taxes paid or deducted from other sources of income. They could only report their investments, income, and eligible expenses. This often resulted in employers calculating TDS based solely on the income reported, leading to higher TDS deductions because they did not account for any taxes already paid.
With Form 12BAA, employees can now declare these additional taxes to their employers. This enables employers to adjust their TDS calculations, which can lower the overall TDS liability and result in a higher take-home pay for employees.
Who can use Form 12BAA?
Form 12BAA is for all salaried employees who have income from sources other than their salary. This includes money from fixed deposits, insurance commissions, dividends from stocks, and taxes deducted or collected when making big purchases like cars.
What are the benefits of Form 12BAA?
The benefits of Form 12BAA include:
- Lower TDS on Salary: Employees can report TDS from non-salary income, which helps lower the total TDS deducted from their salary.
- Increased Cash Flow: With reduced TDS deductions, employees receive more take-home pay.
- Comprehensive Income Reporting: The form requires detailed reporting of different income sources, ensuring accurate tax calculations.
- Easier Tax Compliance: Form 12BAA makes it simpler to report non-salary income, helping employers calculate TDS correctly.
- Fewer Refund Claims: By accurately reporting TDS at the source, employees are less likely to have excess TDS deductions, which reduces the need to claim refunds later.
Can Form 12BAA assist in obtaining tax refunds?
Yes, Form 12BAA can assist in obtaining tax refunds.
By minimizing excess TDS deductions, it reduces the likelihood that employees will need to claim refunds during tax filing, making the process easier and more efficient.
