Form 12BB: Definition, Purpose, How to Generate and Fill Form

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Salaried employees must declare their tax-saving instruments through Form 12BB at the beginning of each fiscal year. It is just an estimated declaration and can be changed during the financial year. Declaring the investments is significant as it results in a higher in-hand salary. However, you must only submit proof of actual investment at the end of the year.

Understanding what is Form 12BB is significant for ensuring tax compliance, as the employer computes the taxable income, determines the TDS, and deducts it each month based on 12BB Form details. The following sections will discuss what Form 12BB is, its purpose, generation, filling, structure, and role of fixed deposits in availing tax benefits.

What is Form 12BB?

Form 12BB is an important document containing various expenses, allowances, and investments for which you can claim tax benefits. The primary purpose of this form is to let employers estimate your tax exemptions and calculate your in-hand salary.

Legally, you must fill out and submit the form in the prescribed format at the beginning of a financial year or whenever you join a new job. Since your in-hand income and tax benefits largely depend on the calculations based on 12BB declarations, accurate filing is extremely important.

Understanding the Purpose of Form 12BB

On 1st June 2016, the Central Board of Direct Taxes (CBDT) introduced Form 12BB as a standardised process to declare investments. It has the following purposes:

Provide tax benefits on all tax-deductible investments and expenses
Allow employees to claim tax exemptions under various sections of the Income Tax Department
Let employers determine tax deductions from their employees’ monthly salaries

Exploring Deductions Eligible via Form 12BB

According to the tax laws, salaried employees can claim several deductions using Form 12BB on income tax. The form structure has four main sections:

House Rent Allowance
Leave travel concessions or assistance
Deduction of interest on borrowing
Deductions under Sections 80C, 80CCC, and 80CCD

Where to Invest for Tax Deductions Using Form 12BB?

You may qualify for tax deductions using the 12BB Form under the following investment options:

Section 80C: Life insurance premiums and investments in ELSS, PPF, NPS, tax-saving fixed deposits, education fees, etc.
Section 80CCC: Premiums paid for annuity plans
Section 80CCD: NPS contributions
Section 80D: Medical insurance premiums
Section 80E: Interest payments on education loans
Section 80G: Donations to recognised charitable organisations
Section 80TTA: Interest earned from savings accounts

How to Generate Form 12BB?

Follow these instructions to generate Form 12BB online:

Visit https://incometaxindia.gov.in/forms/income-tax%20rules/itrform12bb.pdf.
Click on the download button to download Form 12BB.
Take its printout and fill it out correctly with the relevant details.

You may also seek a copy of the form from your employer organisation.

How to Fill Form 12BB?

Follow these instructions to fill out Form 12BB to claim the maximum benefit:

Personal details, including your full name, address, PAN or Aadhaar number, financial year
HRA, including the landlord's name and address, rent amount paid, and landlord's PAN if the rent amount is over Rs 1 Lakh in a year
LTA, including proof of claim, amount of tax saving, etc.
Deduction of Interest on Loans, including interest payable, lender’s name, address, and PAN
Deductions under Chapter VI-A, including those under sections 80C, 80CCC, 80CCD, etc.
Verification of the submitted information with signatures

Avoid these common mistakes when filling out the 12BB Form:

Never submit fake receipts.
Don't claim it for international travel and accommodation expenses in the case of LTA.
If you switch jobs during a year, do not claim maximum benefits at both new and old companies, which causes complications.

Understanding Fixed Deposit Variants

Since fixed deposit is one of the safest and most lucrative investment instruments with tax benefits, here's a breakdown of their different types:

Standard FDs: The investor invests money for a fixed period and gets a predetermined interest rate at maturity.
Special FDs: These FDs are offered for special periods, like 200, 444, 390 days, etc. Their interest rates are higher than regular FDs.
Tax-Saving FDs: The minimum duration for these FDs is five years, offering a tax exemption of up to Rs 1.5 Lakh under section 80C. However, the interest generated is taxable.
Floating FDs: These FDs have changing interest rates according to market fluctuations and RBI guidelines.

Income Tax Slab Rates

Understanding the tax slab rates is essential, as it helps adequately plan the investments and tax claims. According to the new tax regime, the income tax slab rates are as follows:

Tax Slabs	Income Tax Rates
Less Than Rs 3 Lakh	Nil
Rs 3,00,001- Rs 6 Lakh	5% (tax rebate under section 87A)
Rs 6,00,001 – Rs 9 Lakh	10% (tax rebate under section 87A below Rs 7 lakh)
Rs 9,00,001 – Rs 12 Lakh	15%
Rs 12,00,001 – Rs 15 Lakh	20%
Above Rs 15 Lakh	30%

Form 12BB Structure

Let’s explore the structure of Form 12BB:

The opening section requires the assessee’s name, address, PAN and the financial year for declaration.
Section 1 requires you to furnish details about House Rent Allowance, including the rent amount, landlord’s name and address, and PAN if the rent for the previous year exceeds Rs 1 Lakh.
Section 2 contains details about LTA or LTC as per the salary allowances.
Section 3 contains information regarding the interest on loans.
Section 4 requires details of deductions made under section VI-A of the Income Tax Act, including life insurance, mutual funds, fixed deposits, etc.

Points to Note Before Filling Form 12BB

Here are some important considerations and prerequisites before filling out Form 12BB for income tax:

Study your salary structure carefully and check if HRA and LTA are a part of your package. You may claim these deductions only if they are included in your CTC structure.
Grab your loan repayment schedule and interest certificate to make the relevant claims.
Gather all receipts for tax-deductible investments and expenses, including rent, LIC premiums, tuition fees, donations, etc.
Submit genuine investment proofs.
Plan early for maximum deduction.

Should You Invest in Tax-Saving Fixed Deposits?

Let’s look at the pros and cons of investing in tax-saving fixed deposits:

Pros	Cons
1. Tax deduction of up to Rs 1.5 Lakh under Section 80C 2. Stable returns 3. Safety and security under RBI regulation 4. Easy application process 5. No market volatility 6. Loan against FD facility 7. Flexible options for interest payouts	1. Lock-in period of five years 2. Limited flexibility 3. Taxable interest and maturity proceeds 4. No capital appreciation 5. No premature closure or withdrawal

Pros

Cons

1. Tax deduction of up to Rs 1.5 Lakh under Section 80C

2. Stable returns

3. Safety and security under RBI regulation

4. Easy application process

5. No market volatility

6. Loan against FD facility

7. Flexible options for interest payouts

1. Lock-in period of five years

2. Limited flexibility

3. Taxable interest and maturity proceeds

4. No capital appreciation

5. No premature closure or withdrawal

Compared to other investment options, tax-saving fixed deposits generate assured returns, but they are less flexible in terms of withdrawals. Although they offer tax benefits of up to Rs 1.5 Lakh, their interest and maturity proceeds are still taxable.

Conclusion

After understanding what is Form12BB, it’s crucial to understand the tax-saving instruments carefully and choose ones that maximise your tax benefits. Utilise Form 12BB income tax for effective tax planning and minimum tax obligations.