Tax planning is vital for salaried individuals to streamline advance income tax payments as per the Income Tax Act, 1961. Since employers are responsible for applying TDS on salary, the employee submits an investment declaration at the financial year beginning for the necessary assessment.
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If the taxable income exceeds the income tax threshold after factoring in the exemptions, the employer deducts monthly taxes proportionately and remits them to the IT Department. The government’s standard investment declaration format is called Form 12BB. So, let us delve deeper and learn about it in detail.
Despite the investment declaration’s importance to salaried individuals, it lacked standardization. However, the Central Board of Direct Taxes (CBDT) came with a standard format and introduced Form 12BB on 1 June 2016. Accordingly, salaried individuals can reveal their tax-saving expenses and investments in Form 12BB, claiming exemptions under the Income Tax Act. If required, the employer evaluates the employee’s taxable income to apply TDS per norms. However, the employee must know the tax slab rates and their implications for appropriate tax planning and investments in the liability.
Income tax slab rates apply to individual taxpayers based on income thresholds defined in the Finance Act presented in the Union Budget. Calculate your tax liability per the tax slab rate before investing in tax-saving vehicles. Only then, filling up Form 12BB is fruitful while protecting the net take-home salary. However, Form 12BB has lost much of its sheen after introducing the alternative tax slabs. It only allows employers to apply TDS according to the alternate income tax slab rates. So, let us find out more about it.
|Applicable Income Tax Slab Rates for Individuals below 60 Years|
|Regular Tax Regime - AY 2023-24||Alternate Tax Regime – AY 2023-24|
|Income Range||Tax Rate||Income Range||Tax Rate|
|Up to Rs. 2.5 Lakhs||Nil||Up to Rs. 2.5 Lakhs||Nil|
|Rs. 2.5 to Rs. 5 Lakhs||5%||Rs. 2.5 to Rs. 5 Lakhs||5%|
|Rs. 5 to Rs. 10 Lakhs||20%||Rs. 5 to Rs. 7.5 Lakhs||10%|
|Rs. 7.5 to Rs. 10 Lakhs||15%|
|Above Rs. 10 Lakhs||30%||Rs. 10 to Rs. 12.5 Lakhs||20%|
|Rs. 12.5 to Rs. 15 Lakhs||25%|
|Above Rs. 15 Lakhs||30%|
Having grasped the various applicable income tax rates, salaried individuals must plan investments in tax-saving vehicles to reduce their tax liability and increase their in-hand salary. However, an investment declaration using Form 12BB is an estimate, and you can alter it subsequently during the financial year.
However, submit the investment proof before the end of the financial year to establish the claim. The other important point to note is that remittance of monthly TDS on account of the salary deadline is the seventh day of the following month. However, your employer has time up to 30 April for TDS remittance of the year ending on 31 March. So, let us study the structure of Form 12BB for submission to your employer.
You can claim a deduction for rental expenses for your accommodation subject to submitting the following in the relevant Form 12BB section:
Rent amount paid to the landlord
Landlord’s name and address
Landlord’s PAN card if the rent exceeds Rs. 1 Lakh during the financial year
Submit either the rent receipts or agreement as proof. In addition, the cash rent receipt must bear an appropriate revenue stamp.
You can use the allowance or the concession provided by your employer for travel expenses. However, it is your employer’s financial assistance to offset travel expenses when you proceed on leave. The salaried individual enjoys the benefit but must submit travel expenses proof to establish the deduction claim. Therefore, state the claim amount and submit proof when asked for the 12 BB deductions.
You can claim a deduction for interest outgo during the financial year related to loans. Accordingly, claim a deduction for interest on a housing loan: up to Rs. 2 Lakhs under Section 24, subject to complying with the underlying conditions. In addition, submit the proof of interest paid, the lender’s name, and PAN card details. Moreover, you can claim deductions for your registration fee, stamp duty, and brokerage expenses during the financial year.
The final section of Form 12 BB covers the maximum number of deductible elements under the blanket Section 80 of the Income Tax Act. Accordingly, entries in this section are critical to your income tax exemptions impacting your tax liability.
|80C||The total exemption under this section is Rs. 1.5 Lakhs and covers the maximum number of tax-savings vehicles, including PF, PPF, LIC premium, NSC, ELSS, children’s tuition fees, etc.|
|80CCC||Exemption for pension plans of LIC and other insurers|
|80CCD||Your contribution to the NPS Tier-I account|
|80D||You get an exemption for the health insurance premiums covering yourself, your family, and your parents. The exemption limit increases if the insured are senior citizens|
|80DD||You can claim a deduction for expenses incurred for the treatment of physically challenged dependents|
|80E||The claim relates to interest outgo on education loans for yourself or your children during the financial year. You can claim the benefit for consecutive eight years without any limit|
|80EE||Claim deduction against a housing loan if you are a first-time homeowner|
|80G||Donations to approved organizations granted exemption facilities by the IT Department|
|80GG||The deduction relates to rent payments for accommodation without receiving any HRA from your employer|
|80GGA||Donations made to organizations involved in scientific research and rural development|
|80GGC||Non-cash contributions made to political parties|
|80TTA||You can claim a deduction up to Rs. 10000 for earning savings bank interest during the financial year. However, the same does not apply to interest on term deposits|
|80U||A physically challenged employee can claim a deduction under the section depending on the disability. The maximum rebate allowed under the section is Rs. 1.25 Lakhs.|
The above sections are indicative, and they bear different amount limits depending on specified criteria. It is in your interest to check the individual sections for details and underlying conditions.
After understanding the different features of Form 12BB, structure, and implication, you must remember a few cardinal points to benefit from the declaration year after year. Accordingly, check the following most critical ones.
You are responsible for the contents of your Form 12BB and are accountable for any erroneous data. You are aware that the declaration is incomplete without evidence, which you must submit before the financial year ends or the timeline specified by your employer. Therefore, your submitted Form 12BB must pass scrutiny. Any fictitious or fake proof may lead to severe punishment and penalty apart from losing the claim amount.
If you switch jobs in the middle of a financial year, you must be extra cautious with your investment declaration. Submit Form 12BB without claiming the maximum benefit at the old and new employer. The TDS application is sure to be faulty, and you stand liable to the IT department for a flawed ITR inviting penalty and reformatory interest.
Tax planning is as essential as financial planning for achieving your investment objectives. There is no substitute for tracking your tax-deductible investments to maximize your benefits. So, the best time to explore different tax-saving vehicles is at the beginning of the financial year for incorporating them into Form 12BB. Therefore, timely investment evens your tax burden throughout the year, rather than maximizing the financial year’s last quarter from January to March. In addition, you protect a large chunk of your monthly salary, losing out to TDS.
Form 12BB is an essential tool for salaried employees to even out TDS applications through the financial year. Your employer can evaluate your tax liability and deduct it proportionately from your monthly salary to comply with the income tax regulations. However, a mere declaration is no guarantee for claiming deductions. In addition, your Form 12BB is subject to scrutiny with supporting proof for establishing your claimed deductions under the IT Act, 1961.
*All savings are provided by the insurer as per the IRDAI approved insurance plan.
*Tax benefit is subject to changes in tax laws. Standard T&C Apply
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