Parents Can Claim TCS Credits for Children Foreign Education

Parents Can Claim Tax Collected at Source Credits for Foreign Education of Children: New Income Tax Rule:

The recent changes by the Central Board of Direct Taxes provide a much-needed update to the process of claiming Tax Collected at Source credits, particularly beneficial for families with children studying abroad. These changes are intended to ease the tax process for families, allowing more efficient management of TCS credits and making it easier to optimize overall tax liability. The updated guidelines aim to reduce the financial burden on those supporting students’ international education by offering immediate access to TCS credits.

Here’s a summary of the key points on Parents Can Claim TCS Credits for Foreign Education of Children etc

New Tax Collected at Source Claim Flexibility for Parents:

• The Central Board of Direct Taxes amendment allows parents to claim Tax Collected at Source credits on foreign education expenses. Previously, only the student (child) could claim TCS on remittances made abroad.
• Parents can now use the Tax Collected at Source credit to offset their taxable income, potentially reducing their overall tax liability, which eases financial planning for families supporting children’s foreign education.

TCS Applicability:

• Tax Collected at Source will apply to foreign remittances exceeding INR 7,00,000/-, with a 5% Tax Collected at Source rate on these payments.
• To claim this benefit, parents need to file a declaration to the tax collector (e.g., the bank), specifying that the Tax Collected at Source credit should be applied to their PAN instead of the child’s.

New Form 12BAA:

• Central Board of Direct Taxes also introduced Form 12BAA to report non-salary income and offset Tax Collected at Source and Tax Deducted at Source This form is in line with the Union Budget 2024 and allows employees to notify employers of Tax Deducted at Source and Tax Collected at Source deductions from income sources other than salary.

What is Form 12BAA?

Form 12BAA, introduced by the Central Board of Direct Taxes via Notification No. 112/2024 on October 15, 2024, allows salaried employees to report taxes deducted at source and taxes collected at source from other income sources to their employers. This form enhances tax reporting by including non-salary income sources, such as earnings from fixed deposits, dividends, insurance commissions, & taxes paid on significant purchases. This additional disclosure enables employers to calculate withholding tax more accurately, which can reduce excess TDS deductions and increase take-home pay.

How Form 12BAA Reduces TDS on Salary

Without Form 12BAA, employers could only consider salary income when calculating TDS, leading to higher withholding tax if TDS or TCS was already deducted from other income sources. With Form 12BAA, employees can declare these non-salary taxes, allowing employers to adjust the TDS on salary accordingly.

Example: in one case 

• • Salary: ₹10,00,000; Tax Liability: ₹3,00,000
  • Other Income (Dividends): ₹2,00,000; TDS Deducted on Dividends: ₹20,000
  • Total Taxable Income: ₹12,00,000
  • Effective TDS Liability without Form 12BAA: ₹3,20,000
  • Effective TDS Liability with Form 12BAA: ₹3,00,000
  • Take-Home Pay Difference: ₹7,00,000 (after TDS) with Form 12BAA vs. ₹6,80,000 (without Form 12BAA)

To download Form 12BAA, visit the official Income Tax e-filing portal. The form should be available under the downloads section or via updates on the Income Tax website.

Applicability of Form 12BAA under income tax law

The new form covers income from fixed deposits, insurance commissions, dividends, and Tax Collected at Source on various purchases, simplifying tax planning by aligning salary and non-salary tax credits.

Form 12BAA is applicable to salaried employees with income beyond their salary, such as:

• Interest from fixed deposits
• Dividends from investments
• Commissions from insurance policies
• TCS from significant purchases like vehicles or foreign currency

Format & Structure of Income Tax Form 12BAA

The form requires detailed information across several categories:

• General Details:
  • Name and address of the employee
  • PAN or Aadhaar number of the employee
  • Financial Year
• Details of TDS Deducted:
  • Section under which the TDS is deducted
  • Name, address, and TAN of the deductor
  • Amount of tax deducted and income credited
• Details of TCS Collected:
  • Section under which the TCS is collected
  • Name, address, and TAN of the collector
  • Amount of tax collected
• Details of Loss under Income from House Property (if applicable)

What is the Benefits of Income tax Form 12BAA?

• Comprehensive Income Reporting: Provides detailed income reporting, ensuring accurate tax calculations.
• Lower TDS on Salary: Enables the reduction of TDS deducted from salary by considering TDS/TCS on other income sources.
• Increased Take-Home Pay: Reduces the withholding tax on salary, leading to higher cash flow. Simplifies reporting, helping employers calculate TDS more accurately.
• Reduced Refund Claims: Lowers the likelihood of excess TDS, minimizing the need for refund claims.