New form to reduce TDS from salary: CBDT issues Form 12BAA to tell employer about other taxes paid by you
Oct 17, 2024
Synopsis
Form 12BAA to reduce TDS from salary: The Central Board of Direct Taxes has notified a new form called Form 12BAA. The new form notified by the CBDT will help an employee to tell the employer about other taxes paid by you via TDS and TCS on different sources of income or while making expenses. This will consequently help employees to lower taxes deducted from their salary.
According to the income tax laws, an employer must deduct tax from the salary paid to an employee under Section 192 of the Income-tax Act.
To implement the Budget 2024 announcement regarding the adjustment of TDS and TCS from other sources against salary TDS, the Central Board of Direct Taxes (CBDT) has issued a new form called Form 12BAA.
This form will be utilized by employees to report to their employers the tax deductions from sources other than their salaries, such as fixed deposits, insurance commissions, dividends from equity shares, or tax collected while making purchases, like buying a car or foreign currency.
As per the PIB press release dated October 17, 2024, "Vide CBDT Notification No. 112/2024 dated 15.10.2024, the Income-tax Rules, 1962 (‘the Rules’) have been amended, introducing Form No. 12BAA as the prescribed statement of particulars required under sub-section (2B) of Section 192 of the Act. Employees must provide these particulars to their employers, who are responsible for making payments under sub-section (1) of Section 192. The employer, in turn, shall deduct TDS on salary after taking into account the furnished particulars."
How new Form 12BAA will help employees to reduce TDS from salaries
Employers typically deduct TDS from salary as per the declaration given by the employee, taking into account investments and expenses eligible for tax deductions. However, employers did not adjust the taxes paid by the employee against other sources. Now, this will change with the newly notified form from the CBDT.
By informing their employer about TCS collected and TDS deducted via this new form, the employee can lower their tax deduction from their salary. The move will help the employees deal with cash flow issues and increase their income to spend or save. CBDT notified the new form via a notification issued on October 15, 2024.
The new law to inform the employer about other TDS and TCS came into effect from October 1, 2024. The employee can inform the employer about TDS deducted from other sources of income or TCS collected while making a major expense. However, there was no specified mechanism to tell the employer. The new form notified by the income tax department will help the employee to provide this information to the employer.
Abhishek Soni, CEO of Tax2Win.in, an ITR filing website, says, “An employee who wants to lower the tax deducted from salary and hike the take-home pay can use Form 12BAA to inform the employer about taxes deducted from any other source of income or taxes paid while making expenses. Form 12BAA is similar to Form 12BB, which the employee uses to make an investment declaration to the employer so that TDS on salary is deducted accordingly. ”
Sudhir Kaushik, CEO Taxspanner says, "Form 12BB has been modified by the CBDT for employees to provide additional details of income beyond salary, report house property losses with verification, and claim TCS credit through the employer, aimed at curbing tax evasion and enabling faster processing of ITR."
Income tax laws on tax deduction from salaries
According to the income tax laws, an employer must deduct tax from the salary paid to an employee under Section 192 of the Income-tax Act. The tax will be deducted based on the employee's chosen tax regime. An employee can choose either the new or old tax regime. Depending on the tax regime chosen, an employee will have to submit an investment declaration to lower tax deducted from salary income.
The old tax regime allows employees to claim various deductions such as Section 80C, Section 80D, etc., and tax exemptions such as house rent allowance (HRA), leave travel allowance, etc., to lower TDS from salary income.
On the contrary, the new tax regime allows standard deduction from salary income and employer’s contribution to the NPS account to lower TDS from salary.
What Budget 2024 said about claiming credit for TCS and TDS
In the 2024 Budget, the government announced measures to simplify the process of claiming credit for TCS (tax collected at source) and TDS (tax deducted at source) for salaried employees.
According to the Budget announcement, “Representations have been received that credit of TCS paid should be allowed while computing the amount of tax to be deducted on salary income of the employees as this will help in avoiding cash flow issues for employees. Similarly, all TDS may be taken into account for the purpose of deduction of tax from the salary income of employees. Moreover when the TCS etc is not taken into account, the same is required to be claimed as a refund by the employee which adds to the compliance process. In order to ease compliance, it is proposed that sub-section (2B) of section 192 may be amended to expand the scope of the said sub-section to include any tax deducted or collected under the provisions of Chapter XVII-B or Chapter XVII-BB, as the case may be, to be taken into account for the purposes of making the deduction under sub-section (1) of section 192.”
[The Economic Times]
