TDS on Salary Circular: New Rates, Exemptions & Compliance for 2024-25

CBDT Circular No. 03/2025-Income Tax on Salary TDS : New Rates, Exemptions, and Compliance for 2024-25

Summary: The CBDT has introduced significant updates to income tax deductions on salaries under Section 192 for FY 2024-25. Key changes include revised surcharge rates under the old tax regime, updated tax slabs for the new regime, and expanded definitions of salary and perquisites. Contributions to the Agniveer Corpus Fund and withdrawals under the Agnipath Scheme are now tax-exempt. The leave encashment limit for non-government employees has been raised to ₹25,00,000. Form 16 and Form 24Q have been amended to include new reporting requirements. Stricter penalties for TDS non-compliance, including imprisonment and fines, have also been introduced. Employers and employees must review these changes to ensure accurate tax compliance.

The Central Board of Direct Taxes (CBDT) has issued a circular outlining significant amendments to the income tax deduction rules on salaries under Section 192 of the Income-tax Act, 1961, for the financial year (FY) 2024-25. These changes, introduced through the Finance (No. 2) Act, 2024, Finance (No. 1) Act, 2024, and Finance Act, 2023, bring modifications to tax rates, surcharges, exemptions, and compliance requirements.

This article provides a detailed overview of the key updates and their implications for employers and employees.

1. Definition of Salary and Perquisites

The definition of “salary” under Section 17(1) has been expanded to include contributions made by the Central Government to the Agniveer Corpus Fund for individuals enrolled in the Agnipath Scheme. This amendment ensures that such contributions are treated as part of the employee’s salary for tax purposes.

Additionally, Section 17(2) clarifies the inclusion of certain perquisites, such as:

• Rent-free accommodation provided by the employer.
• Concessional accommodation provided at below-market rates.

The valuation of these perquisites will be computed as per the prescribed rules, ensuring uniformity in tax treatment.

2. Revised Surcharge Rates (Old Tax Regime)

The Finance (No. 2) Act, 2024, has introduced changes to the surcharge rates applicable under the old tax regime. The updated rates are as follows:

These changes aim to streamline the tax burden on high-income earners while ensuring equitable taxation.

3. New Tax Regime Slabs for FY 2024-25

The new tax regime, which is now the default option for taxpayers, has been revised with the following slab rates for FY 2024-25:

Taxpayers opting for the new regime must note that most exemptions and deductions, such as HRA (House Rent Allowance) and standard deductions, are not available. However, the regime offers lower tax rates as a trade-off.

4. Key Exemptions and Deductions

Agniveer Corpus Fund

Contributions made by the Central Government to the Agniveer Corpus Fund under the Agnipath Scheme are now exempt from tax under Section 10(12C). Additionally, withdrawals from the fund by enrolled individuals or their nominees are also tax-free.

Leave Encashment

The exemption limit for leave encashment for non-government employees has been increased to ₹25,00,000. The exemption will be the lower of:

• The amount of leave encashment actually received.
• 10 months’ average salary.
• The maximum limit of ₹25,00,000.

Rebate under Section 87A

For individuals with a total income of up to ₹7,00,000, a rebate of up to ₹25,000 is available under the new tax regime. This ensures that individuals in lower income brackets pay minimal or no tax.

5. Amendments to TDS Provisions

Section 192(2B)

Employees can now provide details of other incomes, TDS, and losses under the head “Income from House Property” to their employers. Employers are required to consider these details while calculating TDS on salary, ensuring accurate tax deductions.

Updated Forms

• Form 16: Revised to include new columns for reporting TDS and health/education cess. The updated form is effective from July 1, 2023.
• Form 24Q: Amendments include the substitution of “Education Cess” with “Health and Education Cess” and the addition of a new column for reporting other TDS amounts.

6. Penalties and Prosecution

Section 271C

Failure to deduct or pay TDS will attract a penalty equal to the amount of tax not deducted or paid. This provision ensures stricter compliance with TDS regulations.

Section 276B

Non-payment of TDS to the government within the prescribed time may result in:

• Rigorous imprisonment for a term ranging from 3 months to 7 years.
• Fines.

However, no penalty will be imposed if the TDS is paid before filing the TDS statement.

7. Valuation of Perquisites

Remote Area Definition

The definition of “remote area” has been amended to include areas located:

• Within the local limits of municipalities or cantonment boards.
• Within a 30-kilometer aerial distance from such areas with a population of 1,00,000 or more (based on the 2011 census).

Free Food and Beverages

The value of free food and non-alcoholic beverages provided by employers is now taxable. However, this provision does not apply to employees opting for the new tax regime.