Form 12BAA of Income Tax

The 2024 Union Budget introduced several changes to make tax compliance easier for employers and employees. One such change is the introduction of Form 12BAA, a new document designed to simplify the reporting of non-salary income for salaried individuals. 

With this new form, employees can declare tax deductions or collections from sources outside their regular salary, helping reduce their tax deducted at source (TDS). Let’s dive into the details and understand how this form works, its benefits, who needs to use it, and how to fill it out.

What is Form 12BAA?

Form 12BAA is a declaration form issued by the Central Board of Direct Taxes (CBDT) in 2024, aimed at helping salaried employees report additional income sources and the tax already deducted from these incomes. Previously, employees could only inform their employers about their income from salary and investments like tax-saving fixed deposits or provident funds. However, with Form 12BAA, they can now disclose income from other sources such as:

• Interest on fixed deposits
• Dividends from shares
• Insurance commissions
• Income from capital gains
• Tax collected during large purchases (e.g., buying a car)

By reporting these deductions or collections, employees enable their employers to adjust TDS calculations, reducing the total tax deducted from their salary and increasing their monthly take-home pay.

Why Was Form 12BAA Introduced?

Before Form 12BAA, employers calculated TDS based solely on the salary income reported by the employee, often leading to higher deductions. If the employee had other sources of income on which tax had already been paid or collected, this was not taken into account during TDS calculation by the employer. This often resulted in excessive TDS, leaving employees with lower take-home pay and needing to claim refunds when filing their annual tax returns.

The introduction of Form 12BAA addresses this issue, allowing employees to disclose taxes already paid on non-salary income, ensuring that TDS deductions are more accurate and reducing the need for refund claims.

Applicability of Form 12BAA

Form 12BAA is applicable to:

• All salaried employees who have income sources beyond their regular salary.
• Employees who have already had TDS deducted or TCS collected on other income, such as interest, dividends, or income from investments.
• Individuals with income from significant purchases, like real estate or luxury items, where tax is collected at source (TCS).
• Employees who earn income from house property and have reported a loss under this head.

It is important for eligible employees to fill out Form 12BAA and submit it to their employers at the beginning of the financial year or whenever they receive income from other sources to ensure accurate TDS calculation.

How Does Form 12BAA Help Reduce TDS on Salary?

Let’s understand this with an example:

Example:

Mrs. B is a salaried employee earning an annual salary of ₹15,00,000. She also has additional income from interest on fixed deposits worth ₹1,00,000, on which ₹10,000 TDS has already been deducted by the bank. Without Form 12BAA, her employer calculates TDS based only on her salary income, leading to higher deductions.

Before Using Form 12BAA

In this case, the employer does not consider the ₹10,000 TDS already deducted by the bank, resulting in a higher TDS deduction from her salary.

After Using Form 12BAA

Here, Mrs B declares the TDS already deducted from her interest income using Form 12BAA, allowing her employer to reduce the TDS from her salary. This results in increased take-home pay and avoids excess tax deductions.

Format and Structure of Form 12BAA

Form 12BAA requires detailed information to ensure accurate reporting and calculation of taxes. The structure of the form is straightforward and includes the following sections:

1. General Details

• Name and address of the employee
• PAN or Aadhaar number of the employee
• The financial year for which the form is being submitted

2. Details of TDS Deducted

• Section of the Income Tax Act under which TDS has been deducted
• Name of the deductor (e.g., bank, company)
• Address of the deductor
• Tax Deduction and Collection Account Number (TAN) of the deductor
• Amount of tax deducted
• Amount of income credited/received

3. Details of TCS Collected

• Section of the Income Tax Act under which TCS has been collected
• Name and address of the collector
• TAN of the collector
• Amount of tax collected

4. Loss Under the Head “Income from House Property”

• Amount of loss reported
• Relevant details of the property

Benefits of Form 12BAA

Form 12BAA offers multiple advantages for both employees and employers:

1. Reduced TDS Deductions: By reporting TDS from non-salary income, employees can lower the TDS deducted from their salary, resulting in higher take-home pay.
2. Improved Cash Flow: With reduced TDS, employees enjoy better monthly cash flow, making it easier to manage expenses and investments.
3. Simplified Tax Compliance: The form consolidates income from various sources, making tax calculations easier for employers and reducing discrepancies.
4. Fewer Refund Claims: Accurate TDS calculations minimise the need for employees to claim refunds when filing their tax returns.
5. Enhanced Income Disclosure: By including all income sources, the form ensures a complete picture of the employee’s financial situation, promoting transparency and reducing the risk of underreporting.

How to Download and Submit Form 12BAA?

To download Form 12BAA:

1. Visit the official Income Tax e-Filing Portal.
2. Navigate to the “Forms” section.
3. Search for “Form 12BAA” and click the download link.
4. Print the form or fill it out electronically.

After filling in the required details, submit the form to your employer. It is advisable to do this at the beginning of the financial year or as soon as you have additional income sources to report.

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Conclusion

Form 12BAA is a welcome addition to the income tax framework, simplifying the process of disclosing non-salary income and tax deductions. It helps employees reduce their TDS and streamlines employers’ tax compliance. 

This form can enhance your monthly cash flow, avoid unnecessary tax deductions, and ensure accurate income reporting. Plan early and consider using this form if you have multiple sources of income.

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