Background:

Section 192 of the Income-tax Act, 1961 (IT Act) provides for withholding of taxes on salary paid/ credited by the employer to its employees. Further, the said provisions also provide for an employee to declare income other than salary (including loss on house property) to the employer. However, incomes such as interest income, rental income, dividend income etc. earned by salaried taxpayers are subject to TDS/TCS provisions. Such non-salary income and TDS/TCS thereon may be deducted at different applicable rates. Hence, any adjustment (excess/shortfall) of taxes on the overall annual income was to be considered by taxpayers at the income-tax return filing stage.

However, with effect from 1 October 2024, the said provisions were amended¹ by the Finance Act, 2024 in order to provide relief to salaried taxpayers by allowing consideration of TDS/TCS on non-salary income. The key highlights were:

• Salaried individuals could claim credit of TDS/TCS suffered on non-salary income at the tax withholding stage by declaring its particulars to the employer.

• Employer shall give credit of such TDS/TCS while computing TDS on salary.

• This would ease the cash outflow issues for salaried individuals by lowering their overall tax burden at the salary tax withholding stage itself.

In line with the above amendment, the Central Board of Direct Taxes (CBDT) has issued a Notification2 to incorporate corresponding amendments under Income-tax Rules, 1962 (hereafter referred to as ‘IT Rules’).

We, at BDO in India, have analysed and summarised the key provisions of this Notification hereunder:

Notification 112/2024:

In order to give effect to the aforementioned amendments, the CBDT has notified Form 12BAA and also updated the particulars to be furnished by the employer in Form 24Q and Form 16.

Newly notified Form 12BAA (employee declaration):

• Rule 26B of IT Rules has been amended to provide that in case of employees having income other than salary, the same needs to be furnished to the employer through the newly notified Form 12BAA. The employer would consider such details to compute TDS on salary.

• Details such as the name of deductor, amount of such other income, amount of tax deducted, etc. need to be furnished in Form 12BAA by the employee.

Changes to Form 24Q (quarterly salary TDS return):
Form 24Q (Annexure II) has been updated to include reporting of TDS/TCS on non-salary income reported by employees.

Changes to Form 16 (annual salary certificate):
Form 16 - Part B (Annexure-I) has been updated to include details of TDS/TCS as per Form 12BAA. Thereby, the net tax payable on salary could be computed by employer.

BDO in India Comments

The introduction of Form 12BAA simplifies the process of claiming tax credits for salaried individuals with multiple streams of income. This also ensures accurate TDS computation at the salary tax withholding stage, reducing the need for employees to claim refunds (if any) later at the tax-return filing stage.

The amendments are timely considering the increased scope of TCS on foreign remittances and luxury purchases as outlined in the Finance Act, 2024. It also brings additional compliance for employers to collate such details from their employees, suitable payroll process changes and readiness as well as appropriate reporting to the tax authorities.