The Central Board of Direct Taxes (CBDT) has taken an important step to help salaried employees reduce the Tax Deducted at Source (TDS) from their salaries. With the introduction of Form 12BAA, employees now have an easy way to inform their employers about other income sources where TDS or Tax Collected at Source (TCS) has already been deducted. This will help them avoid excessive TDS on their salary, thus improving their take-home pay.
Starting from October 1, 2024, this new form allows employees to submit their TDS and TCS details from other sources to their employers, enabling a smoother and faster tax deduction process. Here’s everything you need to know about how Form 12BAA can benefit you and reduce your TDS deduction.
How Form 12BAA Works to Reduce TDS Deduction
Form 12BAA is designed to adjust the TDS deducted from your salary by considering the taxes that have already been deducted from other income sources, such as:
- Fixed Deposit (FD) interest
- Share dividends
- Insurance commissions
- Large purchases like cars (TCS applicable)
- Foreign currency payments (TCS applicable)
By filling out Form 12BAA, employees can provide their employer with details of any additional TDS or TCS already deducted on these incomes or expenses. This allows employers to adjust the TDS on the salary, reducing the overall tax liability and increasing the net income employees take home.
For example, if an employee has earned interest on a fixed deposit and TDS has been deducted by the bank, the same can be disclosed in Form 12BAA. The employer can then reduce the TDS on the employee’s salary accordingly, ensuring they don’t pay excess tax.
What Information Is Required in Form 12BAA?
To successfully reduce TDS deduction using Form 12BAA, employees need to provide specific details about the TDS and TCS deducted from other sources. Here’s the information required:
For TDS:
- Section under which TDS was deducted
- Name and address of the TDS deductor (e.g., bank or any other entity)
- TAN number of the TDS deductor
- Amount of TDS deducted
- Total income on which TDS was deducted
For TCS:
- Section under which TCS was collected
- Name and address of the TCS collector
- TAN number of the TCS collector
- Total TCS deducted
In addition, if an employee has suffered any loss from house property (such as from renting or maintaining a house), this can also be reported in Form 12BAA. This can further reduce their tax liability.
Once all the information is filled out, the employee will need to sign and submit the form to their employer. This will enable the employer to adjust the TDS on the employee’s salary for the remainder of the financial year.
Who Benefits the Most from Form 12BAA?
Employees who have significant TDS or TCS deductions from sources other than salary will benefit greatly from this new form. For instance:
- Those earning interest from fixed deposits or shares
- Employees who have made large purchases (such as buying a car or making foreign currency payments)
- Employees who have losses from house property
By filling out Form 12BAA, these employees can ensure that less TDS is deducted from their salary, giving them more money in hand each month, rather than waiting for refunds during the tax filing process.
Difference Between Form 12BAA and Form 12BB
Many salaried individuals may already be familiar with Form 12BB, another tax declaration form. However, Form 12BAA goes a step further by allowing employees to declare not just tax-saving investments and deductions, but also TDS/TCS from other income sources.
With Form 12BB, employees typically report tax-saving investments like PPF, home loan payments, insurance premiums, etc. However, Form 12BAA focuses on reporting income from other sources where TDS or TCS has already been deducted. This is a major relief for those who would otherwise have to wait for refunds after filing their income tax returns.
How Employers Will Adjust TDS Based on Form 12BAA
Once an employee submits Form 12BAA to their employer, the employer will use the provided information to adjust the TDS from the employee’s salary. This means that the employer will consider the TDS and TCS already deducted from other income sources and reduce the amount of tax deducted from the salary accordingly.
The new form ensures that employees have more control over their cash flow and reduces the need for waiting on refunds that could take months to process. This system of adjusting TDS at the salary level brings immediate relief to employees facing higher deductions than necessary.
What Was Announced in the Budget?
In the Union Budget, the government announced that TDS and TCS deducted from other sources could now be adjusted with the salary TDS. The goal was to reduce cash flow issues for employees and ensure that they have more money to take home every month, rather than waiting for tax refunds at the end of the year.
The introduction of Form 12BAA makes it easier for employees to benefit from this system and helps simplify tax compliance. Employees no longer need to claim tax refunds for TDS/TCS deducted from other sources, as this form enables their employers to make necessary adjustments directly.
Form 12BAA is a significant step toward helping employees manage their taxes better and reduce TDS deductions from salaries. With its introduction, the tax process has become much more streamlined, allowing employees to enjoy higher take-home pay without unnecessary delays.
