The Central Board of Direct Taxes (CBDT) has introduced CBDT Form 12BAA, which allows employees to inform their employers about other taxes they’ve paid to reduce their Tax Deducted at Source (TDS) from salaries. This form aims to simplify tax compliance for salaried individuals by adjusting the TDS liability based on additional taxes paid, such as Tax Collected at Source (TCS) or advance taxes. The form is a significant update in the ongoing efforts to streamline income tax processes and ensure fair tax treatment for employees.
How New CBDT Form 12BAA Will Help Employees
Under current tax laws, employers deduct TDS based on estimated annual income. However, this deduction doesn’t account for other taxes employees may have paid, like TCS on foreign remittances, large credit card payments, or taxes paid on professional income. Often, this leads to excessive TDS, requiring employees to file for refunds later.
With CBDT Form 12BAA, employees can now declare these additional tax payments to their employers at the start of the financial year or as soon as they are made. This allows employers to adjust the TDS amounts accordingly, reducing the burden on employees who otherwise face higher tax deductions without considering other taxes they have paid.
Benefits of CBDT Form 12BAA:
- Lower TDS from Salary: By factoring in other taxes paid, employers can now compute a more accurate TDS, preventing excess deductions.
- Better Cash Flow Management: Employees don’t have to wait until the end of the financial year to get a tax refund, leading to improved cash flow throughout the year.
- Transparency and Compliance: The form ensures greater transparency in the tax deduction process and helps employees comply with tax laws without having to wait for refunds.
- Ease of Tax Filing: With accurate TDS deductions, the tax filing process becomes simpler, reducing the chances of discrepancies or delayed refunds.
Income Tax Laws on Tax Deduction from Salaries
In India, under Section 192 of the Income Tax Act, employers are required to deduct TDS from an employee’s salary. The amount is based on the employee’s estimated taxable income for the financial year. Employers take into account various exemptions and deductions, such as House Rent Allowance (HRA), deductions under Section 80C, and so on, before determining the TDS amount.
However, other taxes like TCS on specific transactions (e.g., foreign travel packages or large remittances) or advance tax payments often go unreported during salary deductions. These unreported payments can result in excess TDS and cash flow issues for employees, which is where CBDT Form 12BAA proves beneficial.
Employers can now adjust the TDS in real-time, making tax deductions more precise and ensuring that employees are not overtaxed throughout the year. Additionally, if an employee has income from other sources such as freelance work, they can use this form to declare those payments and the taxes already paid, preventing a mismatch in overall tax liability.
What Budget 2024 Said About Claiming Credit for TCS and TDS
In the Union Budget 2024, the government emphasized simplifying the tax filing process and reducing tax-related disputes for individuals. One of the key measures was improving the process of claiming credit for TCS and TDS, particularly for salaried individuals. Learn More:
