October 2023-24 brought a tax shocker. The rate of tax collected at source (TCS) on the purchase of foreign tour packages and foreign remittances under the Liberalised Remittance Scheme (LRS), other than for education and medical purposes, was raised from 5% to 20%.
Though this additional TCS outflow could be claimed as a refund, it could only be done at the time of filing the income tax return.
However, October 2024-25 has brought good news for all salaried taxpayers. The Union Budget 2024-25 amended section 192 of the Income Tax Act. As per this amendment, which became effective on 1 October 2024, salaried taxpayers will now be able to claim the benefit of offsetting the TCS collected by banks and other authorized dealers on their foreign tour packages and foreign remittances under the LRS against the amount of tax deducted at source (TDS) from their salary by their employers.
To enable the salaried taxpayers to claim the benefit of TCS credit adjustment against the TDS on their salary, the apex body, Central Board of Direct Taxes (CBDT), has introduced a new Form 12BAA under the amended Income Tax Rule 26B, effective from 15 October.
Form 12BAA is simple and user-friendly. Employees must furnish it to their employers to claim the TCS credit against the TDS to be deducted under section 192.
In addition to the TCS credit, employees can also claim the benefit of offsetting the TDS deducted from their non-salary incomes, such as dividends, commissions, interest and rental income, against the TDS deductible on their salary through this form.
Further, the loss against house property can also be claimed in the computation of TDS deductible on their salary through this form. To be sure, such loss could be claimed even prior to the budget amendment.
To claim the benefit of TCS credit, employees need to fill in the details of the section under which tax was collected, the collector's name, address and Tax Deduction and Collection Account Number (TAN), and the amount of tax collected in the said Form 12BAA. Similar details follow for the TDS credit.
Let us suppose Mr X is a salaried employee of ABC Ltd. He earns a salary of ₹30 lakh and an interest income of ₹ 1 lakh, on which the bank has deducted TDS of ₹10,000. During the year, he also purchased an overseas tour package of ₹8 lakh. The authorized dealer has collected TCS of ₹55,000 (up to ₹7 lakh at 5% and excess ₹1 lakh at 20%). Mr X has opted for the new personal tax regime.
Now, before the budget amendment, ABC Ltd was required to deduct TDS of ₹5,90,200 from Mr X's salary. However, Mr X can now furnish Form 12BAA to his employer, giving the complete details of TCS collected by tour operator on his foreign tour package and also TDS deducted by bank on his interest income.
The total tax liability of Mr X on his total taxable income, including interest income, comes at ₹6,21,400. On the basis of Form 12BAA, ABC Ltd will give the benefit of TCS and TDS credit of ₹65,000 available to Mr X, while computing TDS deductible on his salary. Thus, the employer company will deduct TDS of ₹5,56,400 only ( ₹6,21,400 minus ₹65,000) in place of the earlier TDS amount of ₹5,90,200.
Therefore, Form 12BAA enables Mr X to increase his take-home pay by ₹33,800, which before the budget amendment, he could have claimed only as a refund at the time of filing of his income tax return.
Mayank Mohanka is the founder of TaxAaram India and a partner at S.M. Mohanka & Associates.
