Form 12BB – New Form to claim Income Tax Deductions by Employees

All Pay Disbursing officers/DDO’s/AO’s please make an immediate note of your obligation w.e.f 1.6.2016. The CBDT (Central Board of Direct Taxes) has introduced a new form (Form 12 BB) for claiming tax deduction towards LTA, LTC, HRA & interest paid for home loans. The new form mandates people to furnish proof of travel while claiming LTA, LTC, and details of landlord in case of HRA claims. Let us understand this in detail:-

What was the present Rules to submit Income tax  Declaration ?

If you are an employee of a company, at the beginning of every financial year (or) while joining the company you have to submit ‘Income Tax Declaration’ to your employer. This is a provisional statement that has details about your proposed investments and expenses that are Income Tax deductible. At the financial year end, you need to provide supporting Investment Proofs for these investments that you have specified in IT declaration. Based on your proposed investments and expenses, your employer was deducting TDS ,if any from your monthly salary and deposits it to the government account. To calculate TDS, your employer considers the declared investments and expenses that are either Tax Exempted (or) eligible for tax deductions under Income Tax Act. Till date there has been no standard reporting format or template available for furnishing the details of investment or expenditure proofs.

Why this Rule is brought now?

The main reason behind introducing this rule is to plug the loopholes under tax laws by tightening the entire procedure for claiming these tax exemptions. This becomes more important because there was no standard or prescribed format until now for filing these declarations. And in the Budget 2015, the Finance Act had already introduced Section 192(2D) of the Income Tax Act mandating employers to collect all necessary evidences, but the rules and form were yet to be prescribed. The same has been done now.

What is this form to be submitted to pay Roll/DDO’s about?

The declaration needs to be filed for claiming deductions in a prescribed form i.e. Form 12 BB as set up under rule 26C.

What is the obligation casted on the Employer?

Earlier the employers were not under any statutory obligations for collecting bills or other proofs in order to prove the fact that their employees have actually utilized the money they are claiming towards these claims.

But, the current amendment with the introduction of this rule will now make all the employers obligated to collect all the relevant information in the prescribed format apart from collecting the proof of evidence, before they can allow the respective benefits under various tax benefits to the employees.

Details needed to furnish LTA, LTC and HRA claims

The circular as issued by the government has not specified the documents required to be submitted for claiming deductions but the existing documents that employees used to provide should hold good. Following are the documents which are required to claim these benefits:-

How to claim HRA ?

House Rent Allowance is exempt under section 10 (13A) of the Income Tax Act. To claim HRA, you have to provide documentary evidence i.e., Rent receipts. You also have to provide details of landlord (name & address) and the amount paid as rent. Permanent Account Number (PAN) of the landlord shall be furnished if the aggregate rent paid during the year exceeds one lakh rupees.As per the notification issued by the government, a person claiming HRA (Housing Rent Allowance) for over Rs. 1 lakh needs to furnish name, address and PAN i.e. Permanent Account Number of the landlord, apart from giving the rent receipts. With this the government can start tracking the fraudulent claims and can also verify whether the rent received by the landlord has been duly disclosed in their tax-return.

How to claim LTA/LTC ?

With effective from 1st June, 2016, the CBDT has made it mandatory for all the salaried employees to submit travel related expenditure proofs to their employers. To claim LTA (Leave Travel Allowance) or LTC (Leave Travel Concession), people need to provide the evidence of expenditure, and submit boarding pass and tickets for claiming LTA or LTC.

How to claim deductions on Housing Loan ?

To claim income tax deduction under section 24 on home loan interest payments, you have to furnish details of interest amount payable/paid, lender’s name & address & PAN number of the lender in Form 12BB.

How to claim Deductions u/s Chapter VI-A ?

People need to submit relevant proof for claiming deductions under chapters VIA(A) and VI-A that cover Sections 80C, 80CCC, 80CCD, 80E, 80G, 80TTA. Sections 80CCC, 80CCD and section 80C allow a deduction of Rs. 1.5 lakhs on specified investments.

What will be the impact of this new Rule ?

The Income tax department is aiming to bring in consistency in respect of the income tax benefits being claimed and also to ensure that necessary documentary evidence, as prescribed, is maintained while making the claims.

The new rule and the forms will make it really easy for both the taxpayer and the employer because it brings standardization which will help employees and employers both. Moreover from the government’s point of view, the new format will ensure collection and maintenance of information, and will assist them in streamlining their assessment process and curb the malpractice of fake claims.

When will this rule come into effect?

The rules will be applicable from June 1, 2016.

 

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