Form 12 BAA is meant to assist you in Claiming Tax Credits for Non-Salary Income

The Central Board of Direct Taxes (CBDT) granted significant relief to salaried employees on October 15. The Union Budget for 2024-25, published in July, revised sub-section (2B) of Section 192 of the Income Tax Act, 1961, to allow employers to consider any taxes deducted or collected under the terms of Part B or Part BB of Chapter XVII of the said Act, effective October 1.

CBDT notified about the amendments and the new Form 12BAA last month, making this possible. The new form allows an employee to deduct tax at source (TDS) and collect tax at source (TCS) on non-salary income against his or her salary TDS.

As we all know, the Central Government broadened the scope of TCS last year to include the Liberalised Remittance Scheme, trip packages, and other transactions. Until now, TCS was not considered a tax credit when computing TDS on salary income and could only be claimed as a tax refund when filing an income return, causing cash flow concerns for those taxpayers. To avoid this, an adjustment introduced this year allows TCS to be incorporated when calculating TDS on the salary itself.

New Form No.12BAA

The new Form No. 12BAA will serve as a statement for an employee to report to his or her employer the deductions made from other sources of income than salary. For example, earnings from fixed deposits, insurance commissions, dividends, car purchases, foreign currency, and so on are subject to TDS and TCS at different rates and stages throughout the financial year. The new Form simplifies the reporting process by allowing both TDS and TCS details to be reported.

According to the notified Form, an employee must disclose the following information to employers: TDS details, including the section from which tax was deducted, the name and address of the deductor, the tax deduction and collection account number (TAN) of the deductor, the amount of tax deducted, the amount of income received or credited, and any other relevant information.

TCS details, including the provision under which tax was collected, the collector’s name and address, TAN, amount of tax collected, and any additional necessary data.

Furthermore, any loss experienced by the employee should be reported under the heading ‘income from house property’, together with the amount and other important details.

Therefore, salaried employees might claim credit for both TDS and TCS incurred on non-salary income at the time of earning / occurring by submitting the details to their employer. The employer shall provide credit for such TDS and TCS when computing TDS on salary. This will address cash outflow difficulties for salaried individuals by cutting their total tax burden.

Following Changes Took Place

Changes to Form 24Q – Quarterly Salary TDS Return: Annexure II of Form 24Q has been updated to include reporting of TDS and TCS on non-salary income reported by employees.

Changes to Form 16 (Annual Salary Certificate): Annexure I of Part B of Form 16 has been amended to reflect TDS and TCS details from the newly issued Form 12BAA. Thus, the net tax payable on salary could be displayed.

Conclusion

The new mechanism streamlines the process of claiming tax credits for salaried employees with several sources of income. Employees will no longer have to wait until the following assessment year’s return filing season to claim TDS and TCS (other than salary) as a tax refund. It is an appropriate step, given the expanded scope of TCS on overseas remittances and luxury goods. At the same time, it increased the compliance burden on employers to collect such data from their employees, improve the payroll process, and file TDS quarterly returns accurately and on time with the tax authorities.