Employees who often see a large chunk of their salary going towards TDS (Tax Deducted at Source) now have a reason to feel relieved. Starting from October 1, the Central Board of Direct Taxes (CBDT) has introduced a new rule that could significantly reduce the amount of tax deducted from salaries, leaving more money in employees’ hands each month.
What’s New with CBDT’s Form 12BAA?
The government has issued a new form called Form 12BAA, aimed at changing the way companies deduct TDS from employee salaries. Until now, TDS was deducted based only on the investments declared by employees, typically through Form 12BB. However, other taxes paid by the employee, like TDS or TCS (Tax Collected at Source) on fixed deposits, car purchases, or insurance commissions, were not factored in.
With Form 12BAA, employees can now disclose these other tax payments, ensuring that their company doesn’t deduct the same amount again from their salary. This means less TDS and more take-home pay each month.
How Does Form 12BAA Work?
This new form, issued by CBDT, allows employees to declare additional information like:
- TDS paid on fixed deposits
- TCS on car purchases
- Tax on insurance commissions
- Dividends from equity shares
Once employees provide this data, their companies will adjust their TDS deductions accordingly. This could result in lower TDS deductions under Section 192 of the Income Tax Act, which governs salary income tax.
Why This Change Matters to You?
The change means that your employer will only deduct TDS based on the tax that hasn’t been paid elsewhere. Previously, TDS on salary was calculated based on your salary and declared investments, leaving other taxes paid by you outside this calculation. This created an imbalance where some employees ended up paying more in TDS, causing unnecessary deductions from their monthly salary.
Now, with Form 12BAA, you can claim relief by informing your employer about any other taxes paid elsewhere. This helps avoid double taxation and reduces the amount of TDS deducted from your monthly salary, ultimately putting more money in your pocket each month.
Easier, More Transparent Salary Tax Deductions
Form 12BAA will function similarly to Form 12BB, which is currently used for declaring investments. However, 12BAA is more comprehensive and offers employees a way to ensure all taxes they’ve already paid are accounted for. The new process ensures transparency and allows employees to manage their salary tax better.
The process is simple:
- Fill out Form 12BAA with all the necessary details about taxes paid elsewhere.
- Submit the form to your employer to ensure that tax deductions from your salary are updated.
- Enjoy a higher take-home salary each month, with fewer TDS deductions.
A Long-Awaited Relief for Employees
This new rule is part of the government’s broader efforts to simplify the tax process and ease the burden on employees. It aligns with the announcements made in the budget earlier this year, where reducing unnecessary TDS deductions was one of the key changes discussed.
For employees, this could translate into higher monthly cash flow, improved financial planning, and better management of taxes without feeling overburdened by multiple deductions.
A Step Forward in TDS Simplification
Starting October 1, companies must apply these new rules when deducting TDS. Employees should act quickly to fill and submit Form 12BAA to their employer to take advantage of these changes. This small yet significant update could lead to substantial savings for salaried individuals who are already managing taxes on multiple fronts.
