Tax Form 12BAA: A Comprehensive Overview
- Bhavika Rajput
- May 28
- 8 min read
Smt. Nirmala Sitharaman, the Finance Minister, launched Form 12BAA as a new beginning for salaried employees with the Budget 2024. This new form is an expansion of Form 12BA. In an attempt to carry out this announcement, CBDT notified and released the new form 12BAA on October 15. This form will assist workers in reporting to their employers the taxes they have paid on other sources of income, thus lowering the total amount of TDS that the employer deducts from workers' salaries. The definition, advantages, and characteristics of Form 12BAA will be thoroughly examined in this article.
Table of Contents
What is Form 12BAA?
A new form called Form 12BAA was created by the CBDT to improve the way employers are informed about additional sources of income and the taxes that are withheld or collected on them. Employees can use it to submit deductions from a variety of income sources besides their salary, including dividends from stock investments, insurance commissions, fixed deposit earnings, and taxes received from large purchases. It may raise employees' take-home pay while decreasing the total amount of taxes withheld.
Key Features of Form 12BAA
Form 12BAA facilitates the reporting procedure for both employers and employees. In order to lower their tax deductions, employees can give their employer information about the taxes they have paid on other sources of income.
Form 12BAA assists workers in disclosing taxes they have already paid on other income. The employer can use this data to compute and take into account all taxes paid when deducting taxes at the source.
The employee's total disposable income rises as a result of the lower tax deduction.
By lowering the amount of tax withheld from the source, it also improves cash flow. It is very helpful for people who are struggling financially.
Benefits of Form 12BAA
Employees can report TDS from non-salary income, which helps to lower the overall amount of TDS withheld from their pay.
The employee receives more take-home pay when the amount of TDS withheld decreases.
Accurate tax computations are ensured by the form's need for thorough reporting of all income sources.
Employers can more easily compute TDS by using Form 12BAA, which streamlines the non-salary income reporting procedure.
Employees are less likely to experience excessive TDS deductions if TDS is appropriately reported at the source, which lowers the need for a refund claim later on.
Applicability of Form 12BAA
Form 12BAA can be used for:
All employees who earn money outside of their regular salary.
Employees whose other income, such as interest, dividends, or investment income, has already had TDS withheld or TCS collected.
People who earn money from large purchases, such as luxury goods or real estate, for which tax is collected at the source (TCS).
Employees who declare a loss under this heading and receive compensation from their homes.
Employees who declare a loss under this heading and receive compensation from their homes.
To guarantee an accurate TDS computation, it is crucial that qualified employees complete Form 12BAA and turn it in to their employers at the start of the fiscal year or whenever they get income from other sources. It needs to be sent in when they start a new job or at the beginning of the fiscal year. If it is not submitted, the employer will compute TDS based on the assumption that the employee is subject to the new system. The employee may still select a different regime when submitting their income tax return; the declaration is only valid for TDS reasons.
Structure of Form 12BAA
Form 12BAA includes the following components:
General Details:
Employee’s name and address
Employee’s Aadhaar and PAN
Financial Year
Details of TDS Deducted:
Section under which the TDS is deducted
Deductor’s name
Deductor’s address
Deductor’s TAN
Amount of tax deducted
Income credited/received
Any other details
Details of TCS Collected:
Section under which the TCS is collected
Collector’s name
Collector’s address
Collector’s TAN
Amount of tax collected
Any other details
Loss under the head “Income from house property”:
Loss amount
Any other details
Reducing TDS on Salary with the New Form 12BAA
Employees were previously unable to report to their employers any taxes paid, received, or withheld from other sources of income. Because they were only allowed to record their investments, income from other sources, and qualified costs, employers were only able to use reported revenue for determining TDS. Employers would frequently fail to account for taxes already paid, collected, or deducted, which would lead to greater TDS deductions. However, employees can now disclose these taxes to their employers with the introduction of Form 12BAA. Employers will be able to modify their computations in this way, which will lower the total TDS burden and raise employees' take-home pay.
Illustration: X is employed as a salaried employee and gets an annual salary of Rs. 15,00,000. Additionally, he earns Rs. 1,00,000 in interest from fixed deposits, of which the bank has already deducted Rs. 10,000 TDS. His company calculates his TDS based only on his salary income in the absence of Form 12BAA, which can bring him larger deductions.
Before Form 12BAA
Salary income= Rs. 15,00,000
Tax liability= Rs. 4,50,000
TDS on salary by employer= Rs. 4,50,000
Take-home pay= Rs. 10,50,000
After Form 12BAA
Salary income= Rs. 15,00,000
Interest income= Rs. 1,00,000
Total income= Rs. 16,00,000
Total tax liability= Rs. 4,60,000
TDS on salary by employer= Rs. 4,50,000
TDS on interest (declared with Form 12BAA) = Rs. 10,000
Adjusted TDS (After declaration) = Rs. 4,40,000
Take-home pay= Rs. 11,60,000
Here, X uses Form 12BAA to certify that the TDS has already been deducted from his interest income, enabling his employer to collect the TDS from his pay. This prevents excessive tax deductions and raises take-home earnings.
Steps to Download and Submit Form 12BAA
To obtain Form 12BAA, follow these steps:
Step 1: Go to the official e-filing portal for income taxes.
Step 2: Proceed to the "Forms" area.
Step 3: Look up "Form 12BAA" online, then select the download link.
Step 4: Either print the form or complete it online.
Once the necessary information has been entered, send the form to your employer. This should be done as soon as you have more sources of revenue to report or at the start of the fiscal year.
Conclusion
The adoption of Form 12BAA has several key benefits and makes it easier to disclose tax deductions and non-salary income of employees. It simplifies companies' tax compliance and assists employees in lowering their TDS. This form can guarantee proper income reporting, improve your monthly cash flow, and prevent needless tax deductions. If you have more than one source of income, plan ahead and think about using this form.
Frequently Asked Questions
Why was Form 12BAA introduced?
Employers computed TDS exclusively using the employee's reported salary income prior to Form 12BAA, which frequently resulted in larger deductions. When calculating TDS, the employer did not account for the employee's other sources of income where taxes had already been paid or collected. Excessive TDS was frequently the outcome, which reduced employees' take-home pay and forced them to request refunds on their yearly tax returns. By enabling employees to report taxes already paid on non-salary income, Form 12BAA was introduced to alleviate this problem, improve the accuracy of TDS deductions, and lessen the need for refund requests.
What is the benefit of Form 12BAA for employees?
Employers have historically subtracted TDS from salaries using employee disclosures, which eliminated taxes from other sources of income but included investments and allowable costs. This method is altered by the new form. In addition to improving cash flow, this could raise disposable income.
Who should use Form 12BAA?
Form 12BAA helps salaried people who have paid taxes or who have had TDS or TCS collected on their income from a variety of sources, including dividends, interest, or other investments.
Can freelancers or business professionals use Form 12BAA?
No, Form 12BAA only applies to salaried workers whose employers deduct taxes at the source.
Is Form 12BAA mandatory?
Yes, if you wish to pay taxes through your employer's payroll under the old regime. Your employer will calculate TDS using the new tax regime if it is not submitted.
Can Form 12BAA help with tax refunds?
Yes, Form 12BAA lessens the possibility of having to request refunds when filing taxes by limiting excessive TDS deductions.
Can I change my tax regime once I submit Form 12BAA?
Once you inform your employer, your option is set for the year for TDS purposes. When submitting your ITR at the end of the year, you have the option to select a different regime.
How does Form 12BAA reduce TDS on salary?
By stating that TDS has previously been withheld from non-salary revenue, Form 12BAA assists employers in adjusting the TDS from salary income. In addition to improving the employee's cash flow with better take-home pay, this stops wasteful deductions.
When should Form 12BAA be submitted?
It is preferable to file Form 12BAA as soon as non-salary income is received or at the beginning of the fiscal year. Employers can now take the disclosed income and taxes into account when calculating TDS.
How does submitting Form 12BAA affect the calculation of TDS on salary?
Submitting Form 12BAA allows your employer to factor in TDS/TCS already deducted on your non-salary income, reducing the TDS deducted from your salary and preventing excess tax deduction during the year.
What are the common challenges employees face while submitting Form 12BAA?
Employees often struggle with accurately reporting TDS details from multiple sources, reconciling mismatches in TAN or PAN, and providing timely submission to employers before TDS finalization deadlines.
How can employers verify the authenticity of TDS/TCS details submitted in Form 12BAA?
Employers cross-check submitted details against Form 26AS and TRACES portal data to ensure that reported TDS/TCS amounts match government records before adjusting salary TDS.
What happens if there is a discrepancy between Form 12BAA details and Form 26AS?
Discrepancies can lead to rejection of Form 12BAA claims by the employer, resulting in higher TDS on salary and potential complications during ITR filing, requiring rectification through communication with deductors or the Income Tax Department.
Can Form 12BAA be revised if TDS certificates are received late or contain errors?
Yes, employees can submit a revised Form 12BAA with corrected or updated TDS/TCS details, provided it is before the employer processes the final TDS return (Form 24Q) for the financial year.
How does Form 12BAA interact with the new tax regime where exemptions and deductions are limited?
Even under the new tax regime, Form 12BAA helps report TDS/TCS on non-salary income, ensuring accurate tax credit and preventing unnecessary TDS on salary, though deductions claimed may differ.
Are there any compliance risks for employers if they ignore Form 12BAA submissions?
Ignoring valid Form 12BAA submissions can lead to over-deduction of TDS, employee dissatisfaction, and potential scrutiny from tax authorities for incorrect TDS returns.
How should employees handle multiple Form 12BAA submissions if they change jobs mid-year?
Employees must submit Form 12BAA separately to each employer with accurate TDS/TCS details relevant to the period under their employment to avoid double taxation.
Does Form 12BAA impact the advance tax liability of salaried employees?
By adjusting TDS on salary based on other income tax credits, Form 12BAA can reduce the need for advance tax payments, improving cash flow management for taxpayers.
What are the best practices for employers to integrate Form 12BAA submissions into payroll processing?
Employers should set clear deadlines for submission, provide standardized formats, cross-verify with Form 26AS, and update payroll software to incorporate Form 12BAA data seamlessly for accurate TDS deduction.
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