New form to lower tax deductions for salaried employees: CBDT issues Form 12BAA

The Central Board of Direct Taxes (CBDT) has issued a new form known as Form 12BAA to act on the Union Budget 2024 announcement regarding the adjustment of TDS and TCS from other sources against salary TDS.

This form will be used by employees to inform their employers about the tax deductions from sources other than their salaries, like fixed deposits, dividends from equity shares, tax collected from purchases, insurance commissions, etc.

As per the PIB press release dated October 17, 2024, "Vide CBDT Notification No. 112/2024 dated 15.10.2024, the Income-tax Rules, 1962 (‘the Rules’) have been amended, introducing Form No. 12BAA as the prescribed statement of particulars required under sub-section (2B) of Section 192 of the Act. Employees must provide these particulars to their employers, who are responsible for making payments under sub-section (1) of Section 192. The employer, in turn, shall deduct TDS on salary after taking into account the furnished particulars."

How will the new Form 12BAA help employees reduce their TDS?

Employers generally deduct TDS from salary according to the declaration by their employees, taking their investments and expenses eligible to be deducted into consideration. During this, employers do not adjust the taxes paid by employees to other sources. This can change by the new form introduced by the CBDT.

The employers will be able to reduce their tax deductions by informing their employers about the TCS collected as well as the TDS deducted. The form was notified by CBDT on October 15, 2024.

The new law for employees to inform employers about TDS and TCS came into effect on October 1, 2024.

“An employee who wants to lower the tax deducted from salary and hike the take-home pay can use Form 12BAA to inform the employer about taxes deducted from any other source of income or taxes paid while making expenses. Form 12BAA is similar to Form 12BB, which the employee uses to make an investment declaration to the employer so that TDS on salary is deducted accordingly,” Abhishek Soni, CEO of Tax2Win.in, an ITR filing website, said to Economic Times.

Income tax laws for salaried employees

As per the laws, an employer deducts tax from the salary of an employee under Section 192 of the Income-tax Act. The tax deductions are based on the tax regime chosen by employees, from the two available ones, the old and new tax regimes. The employees submit their investment declarations to reduce their tax liability.

Under the old regime, the employees can avail many deductions like Section 80C, Section 80D, etc., and exemptions including tax exemptions such as house rent allowance (HRA) and leave travel allowance. On the other hand, the employees get a standard deduction and lower tax rates under the new tax regime.

Budget 2024 announcement for TDS and TCS

In the 2024 Budget, the government introduced initiatives to streamline the process for salaried employees to claim credits for TCS (tax collected at source) and TDS (tax deducted at source).

“Representations have been received that credit of TCS paid should be allowed while computing the amount of tax to be deducted on salary income of the employees as this will help in avoiding cash flow issues for employees. Similarly, all TDS may be taken into account for the purpose of deduction of tax from the salary income of employees. Moreover when the TCS etc is not taken into account, the same is required to be claimed as a refund by the employee which adds to the compliance process. In order to ease compliance, it is proposed that sub-section (2B) of section 192 may be amended to expand the scope of the said sub-section to include any tax deducted or collected under the provisions of Chapter XVII-B or Chapter XVII-BB, as the case may be, to be taken into account for the purposes of making the deduction under sub-section (1) of section 192,” the budget announcement said.