The Union Budget presented in July 2024 introduced Form 12BAA, which enables individuals to report on non-salary income and related TDS or TCS to the employer. This would allow for more accurate TDS calculation.
This article explains what Form 12BAA is, to whom it should be submitted, its benefits, and how it helps reduce excess tax deductions on salary income.
Key Takeaways
-
Form 12BAA provides a report on TDS already deducted on interest, dividends, or purchases.
-
Employers make an adjustment in salary TDS after reading declared non-salary taxes.
-
Accurate declaration reduces excess TDS, and there will be less of refund claims on filing.
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.
What Information Has to be Provided in FORM 12BAA?
Form 12BAA ensures that the employees disclose certain information for the employers to calculate proper TDS.
1.With Regard to Tax Deduction at Source (TDS):
-
Section of the Income Tax Act under which tax was deducted
-
Name and address of deducting authority
-
Deductor's Tax Deduction and Collection Account Number (TAN)
-
Amount of tax deducted
-
Income credited or received
-
Any other relevant information
2.For Tax Collected at Source (TCS):
-
Section under which the tax was collected
-
Name and address of the collector
-
Collector’s TAN
-
Amount of tax collected
-
Other Important Details, if applicable
3.Loss Under the Head "Income from House Property:"
-
Amount of loss
-
Relevant property details
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.
How Does Form 12BAA Help Reduce TDS on Salary?
Before Form 12BAA was introduced, employees could not declare to their employers the taxes deducted, collected, or paid from other income sources. They could only report the income from other sources, investments, and eligible expenses. Since the employer would calculate TDS only on the reported income, they could end up paying more tax than required, reducing their net income.
With Form 12BAA, employees can provide their employers with a declaration stating TDS on income earned from sources other than salary (e.g., interest, dividends, etc.) that has already been withheld by other parties (e.g,. banks). This declaration will enable employers to modify their calculation of TDS and reduce the amount of TDS deducted in excess of what was already paid.
Example:
|
Details |
Before Form 12BAA |
After Form 12BAA |
|
Salary |
₹12,00,000 |
₹12,00,000 |
|
Interest Income on FD |
₹1,00,000 |
₹1,00,000 |
|
Total Income |
₹13,00,000 |
₹13,00,000 |
|
Standard Deduction |
₹75,000 |
₹75,000 |
|
Taxable Income |
₹12,25,000 |
₹12,25,000 |
|
Total Tax Liability |
₹66,300 |
₹66,300 |
|
Total TDS on Interest (by Bank) |
₹10,000 (not declared) |
₹10,000 |
|
Total TDS by employer |
₹66,300 |
₹56,300 |
|
Annual Income |
₹11,33,700 |
₹11,43,700 |
Disclaimer: The above is just an illustration and the actual figures may vary.
The declaration through Form 12BAA ensures accurate TDS calculation, prevents over-deduction, and increases monthly take-home pay, streamlining tax compliance for both employees and employers.
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:
- 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.
- Improved Cash Flow: With reduced TDS, employees enjoy better monthly cash flow, making it easier to manage expenses and investments.
- Simplified Tax Compliance: The form consolidates income from various sources, making tax calculations easier for employers and reducing discrepancies.
- Fewer Refund Claims: Accurate TDS calculations minimise the need for employees to claim refunds when filing their tax returns.
- 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:
- Visit the official Income Tax e-Filing Portal.
- Navigate to the “Forms” section.
- Search for “Form 12BAA” and click the download link.
- 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. Read More About ITR FIling
Read More About: ITR Filing
Conclusion
The 12BAA Form makes it easier to give non-salary data to payroll departments, resulting in less TDS and hopefully higher net income for employees through more accurate tax reporting for employees as well as employers. Submitting the 12BAA on time allows employees to get the full benefit from this program.
