Ever wondered why your take-home salary changes even when your CTC stays the same?
The difference usually comes down to how your employer calculates Tax Deducted at Source (TDS) and that calculation depends on a declaration form called Form 124.
What is Form 124?
Form 124 is the investment declaration form that salaried employees need to submit to their employers to report eligible exemptions and deductions for the tax year.
But why does your employer need this information?
Well, your employer is responsible for deducting tax at source (TDS) from your salary every month. If they don’t have a clear picture of your planned investments and expenses, they might end up deducting more tax than necessary, leaving you with a lower take-home salary.
To avoid this, employers ask you to declare your tax-saving investments, so TDS reflects your actual tax liability.
What deductions can you claim under Form 124?
Form 124 allows salaried employees to declare exemptions and deductions across four major categories.
| Category | Key Deductions | Maximum Limit |
|---|---|---|
| House Rent Allowance (HRA) | Rent paid for accommodation | Least of: actual HRA received, 50%/40% of basic salary, or rent paid minus 10% of basic salary |
| Leave Travel Concession (LTC) | Domestic travel fare for self and family | Actual travel expenses (economy class airfare or AC first class rail fare) |
| Interest on Home Loan | Interest payable on housing loan | Up to ₹2,00,000 per year under Section 22(1)(b) & 22(1)(c) for self-occupied property |
| Chapter VIII-A & B Deductions | PPF, ELSS, life insurance, medical insurance, NPS, donations | Up to ₹1,50,000 under Section 123; ₹50,000 additional for NPS under Section 124; ₹25,000–₹1,00,000 for medical insurance under Section 126 |
1. House Rent Allowance (HRA)
If you live in rented accommodation, you can declare the rent paid to claim HRA exemption. Under Form 124, you must also disclose your relationship with the landlord, this is a new requirement introduced to curb fictitious and inflated rental claims.
Also, PAN of the landlord is mandatory if the annual rent exceeds ₹1,00,000, as per CBDT guidelines.
2. Leave Travel Concession (LTC)
You can declare planned travel expenses for domestic journeys for yourself and eligible family members. Only the actual travel fare is exempt, hotel stays and meal expenses are not covered under LTC.
3. Interest on Home Loans
If you have taken a housing loan, you can declare the interest payable during the tax year. For a self-occupied property, the maximum deduction is ₹2,00,000 per year under Section 22(1)(b) & 22(1)(c) of the Income Tax Act.
4. Deductions under Chapter VIII-A & B
This category covers the most widely used tax-saving instruments:
- Life insurance premium – Deductible under Section 123 Schedule XV (up to ₹1,50,000)
- PPF and ELSS – Deductible under Section 123 Schedule XV (up to ₹1,50,000)
- Medical insurance – Deductible under Section 126 (₹25,000 for self; additional ₹25,000–₹50,000 for parents)
- NPS contributions – Employee contribution under Section 124 within the ₹1,50,000 limit; additional ₹50,000 under Section 124(3)
- Donations to charitable funds or institutions – Deductible under Section 133 (50% or 100% of donation amount, depending on the institution)
Since this declaration is submitted at the beginning of the tax year, you just need to provide an estimate of the investments you plan to make. It’s okay if the actual amount varies by the end of the year. You’ll have the chance to submit actual proofs later, and your final TDS will be adjusted accordingly.
Form 124 is especially useful if you’re filing your ITR under the old tax regime, as most of these tax-saving options are not available under the new regime.
What is the format of Form 124?
The Income Tax Department has prescribed a standard format for Form 124. Your company’s HRMS portal will typically have it ready for you to fill out.
Form 124 is divided into two main parts:
Part A – Employee Details
This section captures your basic information:
- Full name
- Residential address
- Permanent Account Number (PAN)
- Email ID and contact number
- Relevant tax year
Part B – Details of Claims and Deductions
This section contains the actual financial figures you are declaring:
- HRA: Landlord’s name, address, PAN, Aadhaar, relationship with landlord, and total rent paid
- LTC: Estimated travel fare for eligible journeys
- Interest on borrowing: Lender’s details (name, address, PAN) and the interest payable or paid during the year
- Chapter VIII-A & B deductions: Section-wise declaration of eligible investments and expenses
You may also need to attach supporting documents as annexures:
- Rent agreement or rent receipts for HRA
- Travel tickets or boarding passes for LTC
- Loan sanction letter and interest certificate for home loan interest
- Investment proofs (PPF passbook, ELSS statements, insurance receipts) for Chapter VIII deductions
At the end of the form, you must sign a declaration confirming that the information provided is complete and accurate to the best of your knowledge.
To help you get familiar with the new layout and the deductions it covers, we’ve linked the official draft below.
Draft Form 124.pdf (170.0 KB)
Finally, let me answer a few FAQs on form:
Q. When should I submit Form 124?
Form 124 should ideally be submitted in April or May, at the start of the tax year, so that your employer can spread the TDS benefit across all 12 monthly salary payments. Some employers also allow a revised declaration at year-end (Jan or Feb) for final TDS adjustments based on actual investments.
Q. Do I need to submit Form 124 to the Income Tax Department?
No, Form 124 needs to be submitted only to your employer. Your employer uses it internally to calculate TDS under Section 392, hence your final tax liability is determined when you file your ITR.
Q. What if I switch jobs during the year?
You’ll need to declare your investments to your new employer as well. Also, share the income and TDS details from your previous employer so that they can calculate your total TDS correctly.
Q. What if my investment plans change by year-end?
No problem. You can submit revised investment proofs at year-end, and your employer will recalculate TDS for the remaining months. And if any excess TDS is deducted, it will be adjusted in your final salary payment. Alternatively, you can claim a refund when filing your ITR.
Why do employers ask for it?
What do you declare in Form 124?
Declaration vs Proof
Recalculate tax
Important things to know
Simple example
Your employer reduces taxable income accordingly
Bottom line