Tax Reporting Obligations for HR: Essential Forms and Deadline | Munab ALi Beik | Head Compliance Advisory | Core Integra

India, being larger in population, operates with over 1.51 million registered companies, ranked 5th in GDP and economy, with growth of 7.3% year on year. Indian government revenues (63%) come from the different taxes. The income tax alone covers 19% of the of the revenue for the Indian government. The Tax Deduction on Source [TDS] is the important factor for the government to collect the tax without any lapses.

The role of an HR, especially in relation to payroll management, is critical for the companies in India due to the several statutory and tax legislation-related obligations and compliances. The HR responsibility is required in balancing the company and employees to get the benefit out of the compensation stature.

The attractive compensation structure to make sure the more take-home pay to the employee’s hands. The HR person needs to know about every parameter of the tax applicability and exemption to help the employees get the most take home and select the correct tax regime.

A recent change in income tax holds two types of tax regimes makes more complication in clarifying the employees on the choosing one among them. Selecting the old regime makes the HR and employee maintain the couple of documentations and exchange of tax-saving proofs related activities. The New Tax Regime is simple on rate of tax and no need of tax-saving proofs. For the middle-income group, employees benefitted from the new tax regime with the help of the exemption options provided in the new tax regime.

The Income Tax department, starting from the financial year 2023-24, will use the new tax regime as a default for the employees who have not opted for the old tax regime or have not disclosed the tax regime options. Post-selection of the tax regime, there is no option in the middle of the financial year to swap the tax regimes due to an increase in salary or a correction in receivables, which will be a challenging issue for HR to clarify for
the employees.

The role of HR is the complete life cycle of the employment, in which focussing on the income tax-related forms, compliances, knowing the changes imposed by the government, knowledge, processing, and following with employees are time-consuming activities and chances of missing the deadlines. Outsourcing the payroll activity with the income tax-related compliances is the best way to handle the activity without any errors. The outsourcing companies hold an updated version of software to manage the complete life cycle of the income tax-related compliances, submissions, collections, and verification of documents. Outsourcing helps the HR to focus on other activities without the worry of income tax compliances and employees’ clarifications.

The recently notified Digital Personal Data Protection Act, 2023 [DPDP Act, 2023] mandates the safe preservation of personal data of the employees. Failure to comply with safety requirements has very high penal consequences. The collection of tax-saving proofs, receipts, and other confidential information required to be preserved in the safe custody of the HR.

Forms and Deadlines

1. The responsibility of the HR begins with educating the employees to opt for the tax regime in which employees get a higher in-hand salary. This task is to be done at the beginning of the financial year or at the time of the employee’s joining the company. In case the employee fails to choose the tax regime, by default the new tax regime will be mapped against the employee.

2. HR to collect the Form 12BB under the Income Tax Act, 1961, from the employees whose annual salary is higher than the tax limit and opted for the old tax regime. The declaration on the tax-saving investment is to be in the prescribed form of “Form 12BB,” which contains the tax-exemption-related saving declaration related to 80C, 80D, and any PPF-related investments for the financial year. The Form 12BB is to be collected at the beginning of the financial year for the existing employees and within a month for the newly hired employees.

3. The HR to educate and collect Form 10-IEA from the employee who chooses the old tax regime. Submission of Form 10-IEA is online; it needs to be submitted before the deadline prescribed under the IT Act. In general, the submission of Form 10-IEA will be on or before the 31st of July.

4. HR issued Form 12BA to the employee as an income tax statement, which gives all the details of the perquisites, amenities, and other fringe benefits provided by the employer and profits in lieu of salary. The issuance of the Form 12BA to be on or before the 15 th of July of the subsequent year.

5. HR to collect the tax savings proofs before the end of January and end of March of the financial year. This is to align with the tax declaration made by the employee at the beginning of the financial year. The HR should match the declaration with submitted proofs and further adjust the deduction of tax from the remaining wage-month salary of the employee.

6. Form 16 is the TDS certificate issued by the company to its employees clarifying the deduction details from the salary source. The HR is responsible for issuance of Form 16 to the employees whom the TDS deducted from the salary. The issuance of Form 16 is to be made on or before the 15th of July of the subsequent year. The Form 16 contains details of the employer, components of the salary, deductions, tax-saving investments, calculations of tax, surcharge, education and health cess charges, and standard deductions.

The role of HR with the employees starts at the time of hiring and ends post separation. The Compensation and Benefits/Payroll stature plays a very important role in connecting with the employees to make sure the employees are getting the more in-hand salary. Adequate knowledge, expertise, technology, knowing the changes, tracking the compliances, reviewing the records, and more are the competencies for a person who handles the employee income tax-related compliances. Every listed activity holds its own time limit and penal consequences for non-compliances. It’s necessary to make sure a correct monitoring mechanism is in place to avoid the penal consequences.