In a move aimed at providing relief to salaried employees, the Central Board of Direct Taxes (CBDT) has introduced Form 12BAA. This new form is designed to reduce the Tax Deducted at Source (TDS) from an employee's salary by allowing them to report TDS deducted from other sources of income and Tax Collected at Source (TCS) on major expenses. The initiative aims to ease the cash flow burden on employees, giving them higher take-home pay.

How Does Form 12BAA Benefit Employees?

Employees often face TDS deductions not only from their salaries but also from other income sources like fixed deposits, insurance commissions, and share dividends. In addition, employees may incur TCS on large purchases, such as cars, or foreign currency payments. Previously, employees would wait for refunds on these TDS and TCS amounts, which impacted their cash flow.

With the introduction of Form 12BAA, employees can notify their employers about these additional TDS and TCS deductions. The employer, in turn, can adjust the TDS on the salary, ensuring a larger portion of the salary is available as take-home pay. This reduces the immediate tax burden on the employee and improves liquidity.

Example:

Suppose an employee has earned interest from a fixed deposit and TDS has been deducted by the bank. The employee can now include this information in Form 12BAA, and the employer will factor this into the overall tax calculation. This reduces the need for extra TDS on the salary.

Information Required in Form 12BAA

To complete Form 12BAA, employees need to provide specific details about their TDS and TCS deductions from sources outside their salary. The form requires the following information:

For TDS Deductions:

• Section under which TDS was deducted.
• Name and address of the entity deducting the TDS.
• TAN (Tax Deduction and Collection Account Number) of the deductor.
• Amount of tax deducted under TDS.
• Total income on which TDS was deducted.
• Any additional relevant information.

For TCS Deductions:

• Section under which TCS was collected.
• Name and address of the entity collecting the TCS.
• TAN of the collector.
• Total amount of TCS collected.
• Any additional relevant information.

Additionally, employees can report any losses from house property in Form 12BAA. Once the form is completed, the employee must verify, sign, and submit it to their employer for appropriate adjustments in TDS deduction from their salary.

Who Can Benefit from Form 12BAA?

Form 12BAA is especially beneficial for salaried employees who have TDS or TCS deductions from other sources, such as:

• Interest income from fixed deposits.
• Dividends from shares.
• Commissions from insurance sales.
• Purchases that incur TCS, such as cars or foreign travel.

Employees who have suffered losses from house property can also use the form to notify their employers and reduce their taxable income, which in turn decreases the TDS on their salary.

By reducing TDS on salary, Form 12BAA allows employees to enjoy increased take-home pay. This money can then be used for savings, investments, or everyday expenses, rather than waiting for refunds on excess TDS or TCS amounts.

Key Differences Between Form 12BAA and Form 12BB

While both Form 12BAA and Form 12BB are tax declaration forms, they serve different purposes. Form 12BB is used to declare investments and exemptions like house rent allowance (HRA), interest on home loans, and other deductions to reduce taxable income. On the other hand, Form 12BAA focuses on reporting TDS/TCS deductions from non-salary income sources, allowing employers to adjust TDS on salary accordingly.

With Form 12BAA, employees no longer have to wait for refunds on TDS/TCS deducted on income outside their salary, providing immediate relief and higher take-home pay.

New Rules for TDS Deduction from Salary

Effective from October 1, 2024, these new rules enable employees to submit Form 12BAA to their employers and inform them about any TDS or TCS deductions. This ensures that the employer adjusts the TDS on salary accordingly, reflecting the tax already paid on other sources of income.

Government’s Budget Announcement and TDS/TCS Adjustments

The introduction of Form 12BAA follows the government’s Union Budget announcement, aimed at simplifying tax compliance and alleviating the cash flow pressures on salaried employees. By allowing employees to adjust TDS deductions from other sources directly through their employer, the need to claim refunds on excess TDS/TCS is reduced. This not only speeds up the tax filing process but also helps employees retain more income each month.

Conclusion

The introduction of Form 12BAA marks a significant step towards simplifying tax processes for salaried employees. By allowing the adjustment of TDS and TCS from non-salary sources, employees can now enjoy more liquidity and avoid waiting for refunds on taxes already deducted. This reform ensures employees have higher take-home pay, making it easier to manage their financial obligations and savings.

With the new rules effective from October 1, 2024, salaried employees should promptly explore the benefits of Form 12BAA and take full advantage of this tax-saving tool.