What is Form 12C? Meaning & Purpose

Form 12C is a document used to claim income tax relief, such as deductions and exemptions. This form is prepared to be submitted to the Income Tax Department. The primary purpose of Form 12C is to demonstrate that the individual has paid the correct amount of income tax as per the Income Tax Act of India. It is a document that the assessee furnishes while filing the income tax return, and all necessary information related to the relief claimed by the assessee should be provided in this form.

This blog will discuss Form 12C–its purpose, how to fill it out and the documents required.

What is Form 12C?

The Income Tax Department provided Form 12C, a working paper for income tax rebates for mortgage loans. This form was considered an income tax exemption under Section 192 (2B).

Form 12C was used by employees to submit to their employer outlining their other sources of income. If an employee filled out this form with the necessary information, the employer could consider any income sources besides salary when deducting taxes from wages.

However, the Income Tax Department has stopped using Form 12C. Therefore, filling out or providing your employer with this form is no longer necessary as it is no longer in use.

Purpose of Form 12C

Form 12C is a document that aims to ensure complete transparency in the tax system by requiring taxpayers to disclose all sources of income, including rental income, investment returns, or freelance earnings. The Form 12C is particularly important as it helps tax authorities track and verify taxpayers’ income sources. The form also helps tax authorities identify taxpayers engaging in illegal activities such as money laundering or hiding income from illicit activities. By requiring individuals to disclose all their income sources, the form allows taxpayers to avoid incorrect tax returns, which could result in a tax audit. 

In summary, Form 12C is a crucial tax form that ensures transparency in the tax system, prevents tax evasion, and helps taxpayers avoid errors and omissions in their tax returns.

Who Needs to Fill Out Form 12C?

Form 12C is typically required for individuals with income from sources other than employment or pensions. This includes the following:

• Rental Income from Properties: If an individual owns the property they rent out to tenants, they must declare this income and pay tax on it.
• Dividend Proceeds from Investments: An individual investing in stocks, shares, or other dividend investment vehicles must report this income on Form 12C.
• Interest Income from Savings or Investments: If an individual has a savings account, fixed deposit, or other investment that pays interest, they must declare this income.
• Income from Freelance Work or Self-employment: An individual working as a freelancer, consultant, contractor, or running their own business must report their income and expenses on Form 12C.

Details Required in Form 12C

The information required in Form 12C is as follows:

• Name of the assessee
• Permanent Account Number (PAN) of the assessee
• Assessment year for which the information is being provided
• Amount of deductions claimed
• Income tax liability calculated
• Net tax payable or refundable amount
• Name and address of the person or organisation with whom the tax relief is being claimed
• Brief details of deductions and exemptions claimed

Documents Required for Filling Form 12C

The documents needed for filling Form 12C are as follows:

• Property Ownership Information: Confirming property ownership to claim deductions is imperative. If the individual is a co-owner, they must determine their share of ownership as it dictates the extent of deductions they qualify for.
• Construction Completion or Purchase Date: The year in which the construction of the property is completed marks the initiation of interest deduction eligibility. Additionally, pre-construction interest can be claimed, spread over five equal payments starting from the year of property purchase or completion of construction.
• Borrower Information: The mortgage must be under the individual’s name, aligned with property title ownership to claim deductions. Co-borrowing options are available for mortgage loans.
• Bank Certification: A bank-issued certificate detailing an individual’s interest and principal payments is necessary for claiming deductions.
• Municipal Tax Payments: Municipal taxes paid within the fiscal year are eligible for deduction from house property income.

Key Components of Form 12C

The components of Form 12C are as follows:

• Personal Information: Taxpayers must provide basic personal information such as name, address, PPS number (Personal Public Service Number), and tax year for which the form is being filed.
• Details of Additional Income: This section of the form requires taxpayers to provide detailed information about each additional source of income, including the type of income, the amount earned, and any relevant deductions or expenses. Taxpayers must provide accurate details on their other income sources to ensure they fulfil their tax obligations and avoid potential penalties for non-compliance.
• Declaration and Signature: Taxpayers must sign and date the form to declare that the information provided is accurate and complete. This signature is essential because it indicates that taxpayers understand the importance of accurate reporting and are willing to take responsibility for the information they provide.

How to Complete Form 12C 

Employees must complete and submit Form 12C to their employers, disclosing all income from sources other than their salary. Previously, the form was accessible online through the Income Tax Department’s website. However, recent changes have rendered both online and offline access unavailable.

How to Fill Form 12C

You can fill out Form 12C by:

1. Gather all relevant information and documentation related to your additional sources of income.
2. Read the instructions provided with the form carefully to ensure you understand what information needs to be reported.
3. Complete each section of the form accurately, providing detailed information about each additional source of income. Taxpayers must provide accurate and complete information to avoid potential penalties for non-compliance.
4. Review the completed form to check for errors or omissions before signing and submitting it to the tax authorities.

Why Form 12C Matters

Form 12C is a crucial document for individuals with additional sources of income. By accurately reporting all sources of income, taxpayers ensure they are fulfilling their obligations and avoiding potential penalties for non-compliance. Failure to report additional income can result in audits, fines, and legal consequences, making completing Form 12C correctly and honestly essential. This form is necessary for ensuring transparency in the tax system and preventing tax evasion.

Frequently Asked Questions