Understanding Income Tax Deduction from Salaries for FY 2024-25: Key Updates for Employers and Employees

Understanding Income Tax Deduction from Salaries for FY 2024-25: Key Updates for Employers and Employees

The Central Board of Direct Taxes (CBDT) has issued Circular No. 3/2025, dated February 20, 2025, outlining the guidelines for income tax deduction from salaries under Section 192 of the Income-tax Act, 1961, for the Financial Year 2024-25. This circular provides clarity on the latest amendments introduced through the Finance (No.2) Act, 2024, Finance (No.1) Act, 2024, and the Finance Act, 2023. Here’s a detailed breakdown of the key updates affecting salaried individuals and their employers.

Definition of Salary and Perquisites

1. Expanded Salary Definition: Salary now includes contributions made by the Central Government to the Agniveer Corpus Fund under the Agnipath Scheme (Section 80CCH).
2. Perquisites Inclusion: The definition of perquisites now encompasses rent-free accommodations and accommodations provided at a concessional rate by employers.

Revised Tax Rates Under the Old and New Regimes

Surcharge Rates (Old Tax Regime)

• 10% on income between ₹50 lakh – ₹1 crore
• 15% on income between ₹1 crore – ₹2 crore
• 25% on income between ₹2 crore – ₹5 crore (excluding dividend income and capital gains under Sections 111A, 112, 112A)
• 37% on income above ₹5 crore (excluding dividend income and capital gains under Sections 111A, 112, 112A)
• 15% on income above ₹2 crore (including dividend income and capital gains under Sections 111A, 112, 112A)

Tax Slabs Under the New Tax Regime (Section 115BAC)

• ₹0 – ₹3,00,000 – Nil
• ₹3,00,001 – ₹7,00,000 – 5%
• ₹7,00,001 – ₹10,00,000 – 10%
• ₹10,00,001 – ₹12,00,000 – 15%
• ₹12,00,001 – ₹15,00,000 – 20%
• Above ₹15,00,000 – 30%

Additional Key Amendments

1. Form No. 16 & 24Q Updates:
   • The Health and Education Cess has replaced the Education Cess.
   • New provisions added to Form No. 24Q, including a dedicated field for other tax deducted or collected at source.
2. Leave Encashment Exemption Increased:
   • The exemption limit for leave encashment for non-government employees has been raised to ₹25 lakh.
3. Agniveer Corpus Fund Tax Exemption:
   • Payments from the Agniveer Corpus Fund under the Agnipath Scheme are fully tax-exempt.
4. Rebate Under Section 87A:
   • For those opting for the new tax regime, total income up to ₹7 lakh qualifies for a rebate, ensuring zero tax liability.
5. Penalty & Prosecution for TDS Defaults:
   • Penalty under Section 271C: Failure to deduct/pay TDS can result in a penalty equal to the tax not deducted.
   • Prosecution under Section 276B: Non-payment of deducted TDS can attract imprisonment of 3 months to 7 years.

Employer Responsibilities

Employers must ensure:

• Accurate TDS deductions based on employees’ selected tax regimes.
• Compliance with the revised Form 16 & 24Q formats.
• Prompt deposit of deducted taxes to avoid penalties.
• Timely issuance of Form 16 to employees.

Conclusion

With these new amendments, employees should evaluate which tax regime suits them best. Employers, on the other hand, must align their payroll and tax deduction processes with these updates to ensure compliance and avoid penalties. For further details, refer to the official circular here.

For expert tax planning and compliance guidance, consult a Chartered Accountant today!

Disclaimer:

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.

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