Employee-Friendly TDS Update: Rule 26B and Form 12BAA

The Finance Act, 2024, introduced a taxpayer-friendly amendment to Section 192 of the Income-tax Act, allowing employers to consider certain additional tax credits when calculating TDS on an employee's salary. Effective from October 1, 2024, this update permits employers to adjust TDS by including tax collected at source (TCS) and other non-salary income, making tax deductions more accurate and reducing the chance of excessive withholding. Here’s what employees and employers need to know about the changes and how to comply effectively.

Understanding the New Provision in Section 192(2B)

Section 192(2B) now allows employees who earn salary income to submit information on additional income and tax credits to their employers to ensure a fair TDS deduction on salaries. Specifically, employees can provide details of:

• Other income from heads of income apart from "Salaries" .
• TCS and TDS details collected or deducted under the provisions of Part B or Part BB of Chapter XVII, covering additional taxes paid.
• Losses under “Income from house property”, if applicable.

With these details submitted, the employer can make more precise TDS calculations on the employee's salary, considering TCS and allowable losses to reduce the salary-based TDS. However, this adjustment doesn’t lower the overall tax but allows for optimized deductions that can smooth the taxpayer’s cash flow during the year.

Rule 26B and the Introduction of Form No. 12BAA

To facilitate compliance with Section 192(2B), Rule 26B has been revised, and Form No. 12BAA has been introduced for standardized reporting. Here are the core components:

1. Revised Rule 26B: Streamlined Submission of Additional Income

Rule 26B provides the structure for employees to report additional income, TDS/TCS, and property losses from house property? to their employers. Using Form 12BAA, employees can submit:

• Income other than salaries: Any income earned from non-salary sources within the financial year.
• TDS and TCS details: Information on TDS/TCS paid.
• Property losses: Details on house property income losses, which impact TDS on salaries, are also covered.

Form 12BAA consolidates all these details, allowing employers to compute accurate TDS deductions while meeting tax compliance standards.

2. Form No. 12BAA: A Comprehensive Reporting Tool

Form No. 12BAA is the new tool to facilitate the submission of non-salary income and TDS/TCS details. Key reporting fields include:

• TDS Details: Information on TDS, the relevant sections, deductor details, and the tax amount.
• TCS Details: Required TCS information to ensure TCS credits are accurately applied to TDS calculations.
• Property Income Loss: Employees can report house? property-related loss, which influence the TDS deducted from salary income.

3. Changes to Form 16 and Form 24Q

To align with Form No. 12BAA, adjustments have also been made to:

• Form 16 (Salary Certificate): Updates to Part B, Annexure I, require employers to include TDS/TCS details submitted through Form 12BAA, ensuring comprehensive reporting.
• Form 24Q (TDS Return for Salaries): New columns have been added to capture TDS/TCS details for non-salary income, improving TDS disclosure accuracy.

Implications for Employers and Employees

The Section 192(2B) and amended Rule 26B primarily aim to make TDS more tax-friendly and precise. For employers, this provision requires careful collection of non-salary income and TDS/TCS details from employees through Form 12BAA. Accurate TDS on salaries reduces the risk of over-deduction and helps meet compliance requirements, especially with diversified income sources.

For employees, the ability to account for additional tax credits directly through their employer means smoother cash flow and a more accurate tax payment structure. Submitting non-salary income, TDS/TCS details, and property losses allows employees to avoid excessive TDS deductions, making tax compliance easier and more efficient.

Conclusion

The new TDS reporting structure under Section 192(2B) promotes accuracy and transparency in tax deductions. The introduction of Form No. 12BAA and updates to Forms 16 and 24Q offer a more streamlined and taxpayer-friendly approach to TDS on salaries. Both employers and employees should familiarize themselves with these requirements to ensure timely and accurate compliance, as the amendments take effect from October 1, 2024.

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