The Empuls Glossary

Glossary of Human Resources Management and Employee Benefit Terms

Form 12b

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Form 12B is a crucial document for employees in India, serving as a declaration form used for claiming tax deductions. Mandated by the Indian Income Tax Department, this form must be submitted by employees to their employers to claim tax benefits or rebates on investments and expenses.

Form 12B is applicable for various deductions under the Income Tax Act, such as those pertaining to house rent allowance (HRA), leave travel allowance (LTA), interest on home loans, and deductions under Chapter VI-A, which includes sections like 80C (investments in EPF, PPF, life insurance premiums, etc.), 80D (medical insurance), 80G (donations), among others.

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What is form12b?

Form 12B is an Indian income tax form used by employees who change jobs during a financial year. It's essentially a statement of income and tax deducted at source (TDS) from the previous employer. Here's a breakdown of key points about Form 12B:

Purpose:

When an employee switches jobs in the middle of a financial year (April 1st to March 31st), their new employer needs information about their income earned and taxes deducted by their previous employer.
Form 12B serves this purpose, allowing the new employer to accurately calculate the remaining TDS for the employee's salary throughout the financial year.

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Why is form 12b used?

Form 12B is used in India for a specific purpose when an employee changes jobs during a financial year (April 1st to March 31st). Here's a breakdown of why it's important:

Accurate tax withholding by the new employer:

When you start a new job mid-year, your new employer needs to know your total income and taxes deducted (TDS) for the year so far. This information comes from your previous employer.
Form 12B acts as a bridge, providing details about your income earned and TDS deducted by your previous employer.
With this information, your new employer can accurately calculate the remaining TDS they need to withhold from your salary for the rest of the financial year.

Avoiding tax discrepancies:

Without Form 12B, your new employer might not have the complete picture of your income and tax situation.
This could lead to two potential issues:
Under-withholding: If they underestimate your total income, they might not withhold enough tax, leading to you owing taxes later when you file your return.
Over-withholding: To be safe, they might withhold tax at a higher rate. This would mean you'd get a tax refund later, but it ties up your money unnecessarily.

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Are there any penalties for incorrect information in form 12b?

There aren't any specific penalties mentioned in the Income Tax Act of India for directly submitting an incorrect Form 12B. However, there can be indirect consequences for both the employee and the employer depending on the nature of the mistake.

Here's a breakdown of the potential implications:

For the employee:

Incorrect tax withholding: If the information in Form 12B is inaccurate (e.g., overstated income or understated TDS), it could lead to the new employer withholding an incorrect amount of tax. This could result in:
Underpayment: If the tax withheld is insufficient, the employee might owe taxes along with interest when they file their income tax return.
Overpayment: If too much tax is withheld, the employee would be entitled to a tax refund, but this would involve additional paperwork and waiting for the refund.
Delayed processing of tax return: Inaccuracies in Form 12B might lead to discrepancies when the employee files their income tax return. This could delay the processing of the return or require clarifications from the employee.

For the employer:

Matching TDS with government records: The employer reports deducted TDS to the government. If the information in Form 12B is incorrect, it might not match the records the previous employer submitted to the government. This could lead to inquiries or penalties for the new employer for discrepancies in TDS reporting.

Importance of accuracy:

While there aren't direct penalties for an employee submitting an incorrect Form 12B, it's crucial to ensure the information is accurate to avoid these potential issues.
Employees should double-check the details provided by their previous employer before submitting the form to their new employer.

Recommendations:

Obtain accurate information: Employees should ensure they receive the correct details from their previous employer, including income earned and TDS deducted, before filling out Form 12B.
Retain records: It's advisable for employees to keep copies of their Form 12B and income tax documents for reference during tax filing.
Consult a tax advisor: If there's any confusion or uncertainty about the information in Form 12B, it's best to consult a tax advisor for guidance.

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Why is Form 12B important for calculating tax deductions?

Form 12B plays a critical role in calculating tax deductions for employees who switch jobs mid-year in India (between April 1st and March 31st) for two main reasons:

1. Provides continuity of tax withholding (TDS):

Tax deducted at source (TDS) is a system where employers withhold a portion of your salary as an advance payment towards your income tax liability.
When you start a new job mid-year, your new employer needs to consider your total income and taxes already deducted (TDS) for the year so far to withhold the correct remaining amount.
Form 12B acts as a bridge. It contains details about your income earned and TDS deducted by your previous employer.
With this information, your new employer can accurately calculate the remaining TDS they need to withhold from your salary throughout the rest of the financial year.

2. Ensures accurate tax liability:

Without Form 12B, your new employer might not have the complete picture of your income and tax situation for the current financial year. This could lead to two potential issues:
Under-withholding: If they underestimate your total income based on your new salary alone, they might not withhold enough tax, leading to you owing taxes later when you file your return.
Over-withholding: To be safe, they might withhold tax at a higher rate based on your new salary. This would mean you'd get a tax refund later, but it ties up your money unnecessarily and can be inconvenient.

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Employee pulse surveys:

These are short surveys that can be sent frequently to check what your employees think about an issue quickly. The survey comprises fewer questions (not more than 10) to get the information quickly. These can be administered at regular intervals (monthly/weekly/quarterly).

One-on-one meetings:

Having periodic, hour-long meetings for an informal chat with every team member is an excellent way to get a true sense of what’s happening with them. Since it is a safe and private conversation, it helps you get better details about an issue.

eNPS:

eNPS (employee Net Promoter score) is one of the simplest yet effective ways to assess your employee's opinion of your company. It includes one intriguing question that gauges loyalty. An example of eNPS questions include: How likely are you to recommend our company to others? Employees respond to the eNPS survey on a scale of 1-10, where 10 denotes they are ‘highly likely’ to recommend the company and 1 signifies they are ‘highly unlikely’ to recommend it.

Based on the responses, employees can be placed in three different categories:

Promoters
Employees who have responded positively or agreed.
Detractors
Employees who have reacted negatively or disagreed.
Passives
Employees who have stayed neutral with their responses.

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The Empuls Glossary

Form 12b

What is form12b?

Why is form 12b used?

Are there any penalties for incorrect information in form 12b?