CBDT Notifies Amendments in Income-tax Rules for Ease in Claiming Credit for TCS Collected/TDS Deducted for Salaried Employees and Enabling TCS Credit for Minors in the Hands of Parents

The Central Board of Direct Taxes (CBDT) has issued amendments to the Income-tax Rules, 1962, aimed at simplifying tax compliance procedures, particularly for salaried employees and individuals responsible for minor dependents. These changes, notified through CBDT Notification Nos. 112/2024 and 114/2024, dated 15.10.2024 and 16.10.2024 respectively, address the handling of Tax Collected at Source (TCS) and Tax Deducted at Source (TDS) for salaried individuals and provide a mechanism for claiming TCS credit on behalf of minors. These amendments follow the changes introduced through the Finance (No. 2) Act, 2024 (FA (No. 2)), ensuring smoother tax credit management and a more efficient compliance process for taxpayers.

Key Changes Introduced by the Amendments

1. Simplified Credit Claim for TCS and TDS for Salaried Employees

One of the significant amendments pertains to the ease of claiming credit for TCS and TDS deductions for salaried employees. Previously, salaried individuals often faced challenges when trying to claim credit for TDS or TCS amounts deducted from their income due to complex procedural requirements. To address this, sub-section (2B) of Section 192 of the Income-tax Act, 1961, has been modified to include provisions related to any tax deducted or collected under Chapter XVII-B or Chapter XVII-BB of the Act. This adjustment is crucial for enabling salaried individuals to accurately account for TDS and TCS while filing their tax returns.

The newly introduced Form No. 12BAA will now be the prescribed statement of particulars that employees must furnish to their employers. This form, mandated by CBDT Notification No. 112/2024, serves as the basis for employers to account for TDS while making salary payments. Employees must ensure they provide this information to their employers, who are then obligated to deduct TDS on the salary after considering the furnished particulars.

This change significantly simplifies the process for salaried employees as it ensures that any TDS or TCS amounts deducted under relevant chapters are taken into account at the time of salary disbursement. The incorporation of this information at the employer level minimizes discrepancies when employees file their tax returns, providing them with a seamless experience in claiming tax credits.

2. Credit for TCS of Minors Claimable by Parents

Another critical aspect of the recent amendments focuses on allowing the credit of TCS collected in the case of minor dependents to be claimed by their parents or guardians. Typically, minors do not file tax returns independently, and their income, if any, is clubbed with that of their parents or guardians as per the provisions of Section 64(1A) of the Income-tax Act.

The Finance (No. 2) Act, 2024, amended sub-section (4) of Section 206C to allow credit for TCS to a person other than the collectee, such as a parent, when the minor’s income is clubbed with the parent’s income. Following this legislative change, CBDT Notification No. 114/2024 dated 16.10.2024 amended Rule 37-I of the Income-tax Rules, 1962, to reflect this provision.

Now, parents or guardians, who are legally responsible for reporting the income of their minor children, can claim credit for TCS collected on such income. This amendment helps to streamline the tax filing process for families and ensures that no undue burden is placed on minors who might have earned income through investments or other sources subject to TCS.

Implications of the Amendments

The recent changes introduced by the CBDT provide several important benefits to taxpayers:

1. Increased Accuracy in TDS/TCS Claims: By enabling employers to account for TDS and TCS deductions through Form 12BAA, salaried employees are assured that their tax credits are accurately captured at the source. This minimizes potential discrepancies when filing returns and ensures that employees can smoothly claim any credit due to them.
2. Simplified Compliance for Parents of Minors: The provision allowing parents to claim TCS credits on behalf of their minor children when their income is clubbed with that of the parent’s is a notable relief for taxpayers. It simplifies the tax reporting process and eliminates confusion about how to manage TCS credits when minors are involved.
3. Streamlined Procedures for Employers: Employers are now required to factor in the particulars provided in Form 12BAA, which standardizes the process of calculating tax deductions. This ensures consistency and compliance with tax regulations, reducing the likelihood of errors.
4. Better Tax Management for Families: With TCS credits of minors now easily claimable by parents, families can ensure that they fully utilize any tax benefits available, particularly in cases where minors have earned income that is subject to TCS. This change brings greater clarity and convenience to family tax planning.

How the Changes Impact Taxpayers

For salaried employees, the amendments make it easier to account for any TDS or TCS deductions, thus reducing their tax burden by allowing seamless credit claims. The introduction of Form 12BAA ensures that employees can provide employers with all the necessary details regarding their TDS/TCS, ensuring that the tax deducted aligns with the actual income received.

Parents or guardians of minors will also find the amendments beneficial, as they now have the legal backing to claim TCS credits on income that has been clubbed with theirs. This adjustment helps eliminate ambiguity in cases where minors have investment income, scholarships, or other sources of income that attract TCS but do not file independent tax returns.