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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.
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.
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.
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.
The Budget acknowledged that TCS on specific transactions often leads to confusion among taxpayers. In many cases, individuals found themselves in situations where both TCS and TDS were deducted without proper coordination, resulting in taxpayers having to claim refunds later. To address this, the government introduced provisions to ensure that TCS credits could be easily claimed at the time of tax filing, thus reducing the need for refunds and speeding up the entire process.
The introduction of CBDT Form 12BAA is a continuation of this reform, aligning with the Budget’s goal of providing greater ease to taxpayers. By declaring taxes paid through TCS or advance payments upfront, employees can avoid over-deduction of TDS and ensure that tax credits are applied correctly throughout the year.
CBDT Form 12BAA is a welcome update for salaried employees, providing a structured way to declare other taxes paid and reducing the chances of excessive TDS. By incorporating these details, employers can deduct a more accurate TDS amount, ensuring employees maintain better cash flow and avoid tax refund hassles. The government’s move aligns with the Budget 2024 reforms aimed at streamlining the tax system and making it more taxpayer-friendly.
DISCLAIMER: The information provided in this article is intended for general informational purposes only and is based on the latest guidelines and regulations. While we strive to ensure the accuracy and completeness of the information, it may not reflect the most current legal or regulatory changes. Taxpayers are advised to consult with a qualified tax professional or you may contact to our tax advisor team through call +91-9871990777 or info@semantictaxgen.in