The Central Board of Direct Taxes (CBDT) has introduced Form 12BAA, a significant step toward streamlining tax deductions and enhancing employee cash flow management. Announced by Finance Minister Nirmala Sitharaman in the 2024-25 General Budget, this form addresses a critical gap in tax deduction mechanisms, allowing employees to inform their employers about taxes deducted at source from non-salary income and expenses.

What is Form 12BAA?

Form 12BAAenables employees to declare TDS (Tax Deducted at Source) and TCS (Tax Collected at Source) from income sources and transactions outside their salary, including:

• TDS on Income Sources:
  • Interest from fixed deposits
  • Insurance commissions
  • Dividends from equity shares
• TCS on Large Expenses:
  • Car purchases
  • Foreign currency transactions

By providing this information, employees ensure that their salary TDS is adjusted to avoid excess deductions.

Why is Form 12BAA Important?

1. Accurate Tax Adjustments:

1. • Employers will now account for TDS/TCS from other sources while calculating TDS on salary.

2. Improved Cash Flow for Employees:

1. • Prevents over-deduction of TDS, ensuring employees have more disposable income for saving or spending.

3. Streamlined Tax Management:

1. • Simplifies tax compliance by consolidating information from multiple sources.

What Changes After Form 12BAA?

Before Form 12BAA                                     

• As for employers, TDS was computed solely by taking declarations on investment and expenses made by employees into account.
• TDS had been over-deduction from salaries as other sources of income or large transactions was not included in tax payments. The addition of capability to recognize TDS/TCS from other sources of information is present now that allows many employees to correctly submit the salary TDS deductions.
• Employers change the TDS according to the actual taxes required, so employee don’t require big amount of refund later on. paid on other sources of income or large transactions were not considered, often leading to over-deduction of TDS from salaries.

After Form 12BAA:

• Employees can now provide detailed information about TDS/TCS from other sources, enabling accurate salary TDS deductions.
• Employers adjust TDS to reflect actual tax liabilities, eliminating the need for employees to claim significant refunds later.

Effective Date                        

Form 12BAA came into force on October 1, 2024, offering a simple and efficient mechanism for employees to inform their employers about external tax deductions.

How to Use Form 12BAA

Employees should:

1. Gather details of TDS and TCS from other income sources and expenses.
2. Fill out Form 12BAA with accurate information.
3. Submit the form to their employer for adjustments in salary TDS.

Conclusion

Form 12BAA marks a transformative step in tax deduction processes, benefiting both employees and employers. By preventing over-deductions and improving cash flow, this initiative simplifies compliance and enhances financial planning.

Start using Form 12BAA today and enjoy smarter tax management!

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