Lower TDS on Salary Income: Employee to File Form 12BAA with Employer to Avail Credit of Other TDS and TCS

As per the memorandum to Finance Bill, 2024, CBDT received various representations that TDS under head salary is being deducted after considering income from other sources such as Interest on FD, Commission Income, Dividend income, etc. However, TDS deducted or TCS collected under other heads of income is not being considered by the employer and this leads to higher deduction of tax.

Accordingly, in the Union Budget, CBDT proposed to reduce such TDS burden on employees by allowing the credit of TDS deducted or TCS collected under other heads of Income. For this purpose, necessary amendments were made in Section 192 of the Income Tax Act and CBDT introduced a new Form 12BAA.

1. Amendment in Section 192 of the Income Tax Act

• As per Section 192(2B) of Income Tax, if an assessee receives any income chargeable under the head “Salaries” and has income chargeable under any other head as well then he shall send the details of such other income and TDS deducted there on to the employer.
• However, Now Section 192(2B) has been amended to provide that the employee shall furnish the details of income earned under other heads of Income and TDS deducted or TCS collected under any other provisions of the Income Tax Act to the employer.
• Accordingly, while computing TDS liability on Salary Income, the benefit shall be given of all the TDS deducted and TCS collected under the Income Tax Act.
• Amended provisions of Section 192(2B) of the Income Tax Act have been implemented from 1st October 2024.

Read Also: TDS on Sale/Purchase of Immovable Property

2. Manner of furnishing Information

• Rule 26B of Income Tax Rules, 2024 has been amended vide Notification No. No. 112/2024/F. No. 370142/19/2024-TPL  dated 15th October 2024 to provide that the employee shall furnish the following information to the employer:
  • any income chargeable under any other head of income in the same financial year; 
  • TDS Deducted or TCS collected under the provisions of Part B or Part BB of Chapter XVII;
  • Losses under the head “Income from house property”

• The Information shall be furnished through the newly inserted Form 12BAA.

3. Information to be furnished in Form 12BAA

As per newly notified Form 12BAA, the employee shall furnish the following information to the employer:

1. Details of other Tax Deducted at Source
   1. Section under which tax deducted at source
   2. Name of Deductor
   3. Address of Deductor
   4. TAN of Deductor
   5. Amount of TDS Deducted
   6. Amount of Income Received/Credited

2. Details of Tax Collected at Source –
   1. Section under which tax Collected at source
   2. Name of Collector 
   3. Address of Collector
   4. TAN of Collector
   5. Amount of tax Collector

3. Loss under the head “Income from house property”
   1. Amount
   2. Details

4. Benefits of Form 12BAA

Form 12BAA shall have various benefits for the employees:

1. Higher home salary by getting the benefit of TDS deducted and TCS collected under other provisions of the Income Tax Act;
2. Less Tax compliance as an employee shall be available with precise tax working during the year itself.
3. No need to get into the TDS refund process. In most cases, employees need to apply for a refund of TDS deducted due to a higher deduction of TDS on salary. Now, the employer shall deduct only such an amount as TDS which the employee is liable to pay as income tax.

Conclusion

Form 12BAA is indeed a blessing for the employee section. However, the same required correct reporting of Income, TDS deducted, and TCS collected during the year. Higher reporting of TDS and TCS may lead to lower deduction of TDS on salary and employees may need to pay a differential amount at the time of filing ITR along with applicable interest.