How Form 12BAA Reduces Salary TDS?

CBDT New Form 12BAA allows employees to inform their employers of taxes already paid on other income sources. 

• The Central Board of Direct Taxes has introduced Form 12BAA following Budget 2024’s announcement to facilitate employees in reporting tax deductions collected from sources other than their salary.
• This form allows employees to inform their employers about additional Tax Deducted at Source and Tax Collected at Source from various sources, enabling a more accurate TDS calculation on their salary income.
• Before this form, employers calculated TDS solely based on salary and tax-saving declarations, ignoring taxes already deducted or collected on other income sources, such as fixed deposits or large purchases like cars or foreign currency.

Key Details About Form 12BAA

• According to Section 192(2B) of the Income Tax Act, this form must be submitted by employees receiving non-salary income subject to Tax Deducted at Source or Tax Collected at Source. The Central Board of Direct Taxes Notification No. 112/2024, issued on October 15, 2024, officially introduced this form as part of the Income-tax Rules, 1962.
• Purpose of Filling of Form 12BAA : Form 12BAA allows employees to report non-salary tax deductions and collections, such as Tax Deducted at Source from fixed deposits, dividends, insurance commissions, or Tax Collected at Source from car purchases or foreign currency transactions. By providing these details, employees ensure that their employer adjusts the salary Tax Deducted at Source
• Budget 2024 introduces of Form 12BAA update aims to simplify tax compliance for employees by avoiding double deductions, streamlining the tax withholding process, and ensuring accurate reporting of all sources of taxable income.
• Who Uses It: Employees use Form 12BAA to declare tax deductions and collections from income sources other than their salary.
• Employers will utilize the details submitted to calculate Tax Deducted at Source on the employee’s salary, offsetting the non-salary deductions to avoid excess tax withholding.

How CBDT New Form 12BAA Reduces Salary TDS?

With Form 12BAA, employees can now submit details of

• Tax Deducted at Source on non-salary income sources, such as interest on fixed deposits or dividends, and
• Tax Collected at Source on specific purchases (e.g., cars or foreign currency transactions). By accounting for these already-paid taxes, employers can reduce the TDS deducted from the employee’s salary, preventing excess withholding and improving monthly cash flow for employees.
• Process: Employees will complete Form 12BAA with details of Tax Deducted at Source or Tax Collected at Source from other sources and submit it to their employer.

Employees must provide the following information in Form 12BAA:

• Main details like Name, address, PAN/Aadhaar, financial year.
• TDS Details like Name and TAN of deductor, income type, and amount of TDS.
• TCS Details like Information on taxes collected at source on relevant transactions. details of Loss from House Property for example-  Declaration of any loss under this head.
• The employer, responsible for deducting Tax Deducted at Source on salary under sub-section (1) of Section 192, will adjust the employee’s salary Tax Deducted at Source based on the information provided in Form 12BAA.

How to Access Form 12BAA?

• New Income Form 12BAA can be downloaded from the Tax portal or you may take it via the employer’s internal tax declaration system, applicable from FY 2024-25 onwards.
• Applicability of Form 12BAA : Form 12BAA is relevant for salaried employees with income beyond their salary, such as: Dividends, Tax Collected at Source on significant purchases (e.g., car, foreign currency), Insurance commissions, Interest from Fixed Deposits, Other taxable non-salary income.
• Form 12BAA reduce the need for tax refunds by reporting non-salary income and associated taxes, employees can prevent excess Tax Deducted at Source, minimizing the need for refunds during tax filing.

What is Benefits to Employees by the introduction of Form 12BAA?

• Improved Cash Flow: Employees avoid over-taxation on salary, ensuring they retain more take-home pay for spending or saving.
• Efficient Tax Compliance: Consolidating taxes paid from various sources simplifies tax reporting and minimizes the risk of refund delays due to excess TDS.
• Form 12BAA is set to ease cash flow for employees by allowing them to report Tax Deducted at Source and Tax Collected at Source from non-salary sources to their employers.
• Other benefit like Lower TDS on Salary, Increased Take-Home Pay, Comprehensive Reporting, Simplified Tax Compliance, Financial Flexibility
• The change took effect on October 1, 2024, with The Central Board of Direct Taxes Notification No. 112/2024 issued on October 15, 2024 formally introducing Form 12BAA.

What is Differences between Form 12BA, Form 12BB, and Form 12BAA?

Differences between Form 12BA, Form 12BB, and Form 12BAA

Particular	Form 12BA	Form 12BB	Form 12BAA
Purpose of form	A statement provided by employers to employees, detailing perquisites, fringe benefits, and amenities received by the employee	A declaration form submitted by employees to their employer for reporting tax-saving investments and expenses to ensure accurate TDS deduction.	A declaration form submitted by employees to their employer for reporting tax-saving investments and expenses to ensure accurate TDS deduction.
Who Uses It	Employers, to report perquisites provided to employees in addition to salary.	Employees, to declare tax-saving claims like House Rent Allowance (HRA), Leave Travel Concession (LTC), interest on home loans, and deductions under Section 80C, 80D, etc.	Employees, to report any TCS collected on their behalf.
Contents of Form	Lists perquisites such as accommodation, car benefits, loans, and other employee benefits, with monetary value and applicable tax	Includes details of HRA, home loan interest, and tax-saving investments (e.g., under Section 80C for provident fund, 80D for medical insurance).	Details TCS collected on transactions relevant to the employee.
Requirement of filling of form	Mandatory for employers to provide if employees receive perquisites during the financial year	Helps employees reduce TDS liability by declaring tax-saving investments and eligible expenses.	Ensures accurate tax computation by providing information about TCS to the employer.

Conclusion

• Form 12BAA allows salaried employees to adjust their TDS based on taxes already paid on non-salary income, ensuring accurate tax calculations and maximizing take-home salary.
• Salaried individuals with additional taxable income sources, like dividends, fixed deposits, or commissions, should submit Form 12BAA.
• This form benefits both employees and employers by reducing administrative burdens related to tax compliance and streamlining TDS calculations.