New Rules for TDS on Salary post Budget 2024

The Union Budget 2024 proposed several important changes to the tax deduction at source (TDS) on salaries, particularly in the new tax regime. While the old regime remains identical, the new regime has undergone several changes focused on bringing taxpayer relief. The most important amendments and implications are listed below.

New Tax Regime Slab Rates for FY 2024-25

The slab rates of the new tax regime have been revised for the financial year 2024-25. The updated slabs are as follows:

Standard Deduction Increased

The standard deduction has been raised from Rs.50,000 to Rs.75,000 under the new tax regime.

Exemption Limit of Family Pension Increased

The deduction under Section 57 has been enhanced from Rs.15,000 to Rs.25,000 under the New Tax Regime.

Employer’s Contribution to Pension Fund

The employer’s contribution limit to the pension fund under Section 80CCD(2), which is deductible under both the old and new regimes, has been raised to 14% from 10% of the salary.

Change in Section 192: TDS Deduction Based on TCS Collection

A new rule has been added, which states that if TCS (Tax Collected at Source) is collected from an employee on any transaction and declared to the employer, the employer must include this TCS for TDS deduction on salary. Previously, the employer simply evaluated TDS deducted.

Old Tax Regime Slab Rates for FY 2024-25

Rebate Under Section 87A

This is only available to resident individuals, not non-resident individuals or anybody else.

Under Old Tax Regime: Only if total income is not above Rs.500000, rebate shall be provided up to Rs.12500.

Under New Tax Regime: Only if total income does not exceed Rs.700,000, a rebate of up to Rs.25000 is available.

Important Note:

• Rebate from LTCG shall not be authorized under section 112A.
• Not allowed to HUF.
• Not permitted to NR.
• Allowed for LTCG/STCG u/s 111A, casual income (ex. lottery) – under the old regime only.

Let’s understand all these changes with Examples.

Example 1: Standard Deduction and New Slab Rates

Scenario:

Annual salary: Rs.12,00,000
Applicable under the new regime

Calculation:

Gross Salary: Rs.12,00,000
Standard Deduction: Rs.75,000
Taxable Income: Rs.12,00,000 – Rs.75,000 = Rs.11,25,000

Tax Computation:

Up to Rs.3,00,000: Nil
Rs.3,00,001 to Rs.7,00,000: 5% of Rs.4,00,000 = Rs.20,000
Rs.7,00,001 to Rs.10,00,000: 10% of Rs.3,00,000 = Rs.30,000
Rs.10,00,001 to Rs.11,25,000: 15% of Rs.1,25,000 = Rs.18,750

Total Tax Payable:

Rs.20,000 + Rs.30,000 + Rs.18,750 = Rs.68,750

So TDS is to be deducted in the whole year based on this in equal amount.

Example 2: TDS Deduction Considering TCS

Scenario:

Annual salary: Rs.10,00,000
TCS collected: Rs.5,000
Employee declares TCS to the employer

Calculation:

Gross Salary: Rs.10,00,000
Standard Deduction: Rs.75,000
Taxable Income: Rs.10,00,000 – Rs.75,000 = Rs.9,25,000

Tax Computation:

Up to Rs.3,00,000: Nil
Rs.3,00,001 to Rs.7,00,000: 5% of Rs.4,00,000 = Rs.20,000
Rs.7,00,001 to Rs.9,25,000: 10% of Rs.2,25,000 = Rs.22,500

Total Tax Payable:

Rs.20,000 + Rs.22,500 = Rs.42,500

TDS Deduction Adjustment:

TCS Declared: Rs.5,000
Adjusted TDS Deduction: Rs.42,500 – Rs.5,000 = Rs.37,500

So TDS is to be deducted in the whole year based on this in equal amount.