The Central Board of Direct Taxes (CBDT) of India has introduced Form 12BAA, a new initiative that allows employees to report their non-salary income and tax deductions more efficiently. The form is designed to help employees manage their tax liability and improve cash flow by providing employers with detailed information on tax deducted at source (TDS) and tax collected at source (TCS) from various income sources. This development is in line with the provisions of the Union Budget 2024 and aims to reduce the overall tax deducted from employee salaries, thereby increasing disposable income.
A Solution to Cash Flow Challenges for Employees
Under the current taxation system, employers are required to deduct tax at source from employee salaries, as per Section 192 of the Income Tax Act, 1961. This deduction is based on the employee’s declared tax regime and any deductions or exemptions they report. However, until now, employees could not report all their TDS or TCS, such as tax collected from other income sources like investments or commissions, to their employers.
Mitesh Jain, partner at Economic Laws Practice, explained the challenges this presented for employees: “Previously, employees could report other income and associated tax deductions but couldn’t report TCS and all TDS to the employer. This resulted in higher tax deductions by employers from salary payments and cash flow issues for employees.”
Form 12BAA addresses this gap by enabling employees to report their non-salary income sources and taxes deducted on them, helping to ensure that employers deduct the correct amount of tax from their salaries. This, in turn, can alleviate cash flow issues and provide employees with more disposable income each month.
Benefits of Using Form 12BAA
Form 12BAA allows employees to disclose TDS and TCS deducted from non-salary income, which can include interest from fixed deposits, insurance commissions, share dividends, or even taxes collected on large purchases or foreign currency payments. By reporting these details to their employer, employees can reduce the amount of tax deducted from their salaries.
As a result, this initiative offers a direct benefit to employees by increasing their take-home pay, giving them more financial flexibility to either save or spend as needed.
Rajarshi Dasgupta, executive director of Tax at AQUILAW, highlighted the advantages of the new form: “Form 12BAA would majorly simplify the Income Tax filing process for the employees and all transactions will be duly recorded under one form.”
Details Required in Form 12BAA
Employees using Form 12BAA must provide detailed information about their non-salary income and any TDS or TCS that has already been deducted. This includes information such as:
- The section under which tax was deducted or collected
- The name and address of the deductor or collector
- The Tax Deduction and Collection Account Number (TAN) of the deductor or collector
- The amount of tax deducted or collected
- The income amount received or credited
Additionally, if an employee incurs a loss under the category of “income from house property,” this can also be reported in the form. This inclusion helps employees provide a more accurate picture of their overall financial situation, further simplifying the tax process.
Simplified Income Tax Filing
By consolidating tax information from both salary and non-salary income sources into one form, Form 12BAA simplifies the income tax filing process for employees. It eliminates the need for multiple forms and helps employees avoid overpayment of taxes, which often results in cash flow constraints.
In addition, the form allows employees to take into account losses, particularly from house property, that can impact their taxable income. By reporting all relevant information in one document, employees can ensure that their tax deductions are accurately calculated, potentially leading to significant savings.
Improved Financial Planning for Employees
With the introduction of Form 12BAA, employees can better manage their finances and tax obligations. By reducing the overall tax deducted from their salaries, employees can enjoy improved cash flow, enabling them to plan their savings and expenses more effectively.
Employers, in turn, benefit from having a clearer picture of their employees’ tax liabilities, ensuring that the tax deductions they make are accurate and in line with the law. This can help foster a more transparent and efficient payroll system.
In conclusion, Form 12BAA is a significant step forward in simplifying the tax filing process for employees in India. By allowing employees to report non-salary income and related tax deductions, the form ensures that tax is deducted accurately, increasing take-home pay and alleviating cash flow issues. As more employees adopt this form, it is expected to streamline tax management and foster better financial planning across the workforce.
