Updated 24Q TDS Return Effective from January 2025 - Relief to Salaried Employees

From October 1, 2024, the government mandated employers to consider the TDS/TCS deducted on non-salary income when computing TDS on salary. This adjustment aims to reduce the excessive TDS deductions often faced by salaried employees by ensuring that tax already paid on non-salaried income is accounted for. While this legal change was introduced in 2024, implementing the necessary technical infrastructure took time. Protean (formerly NSDL e-Governance) confirmed that these updates were integrated into the TDS software as of December 27, 2024, ensuring accurate TDS certificates from Q4 of FY 2024-25 onwards. This ensures that employees will benefit from accurate TDS calculations and certificates for the remainder of FY 2024-25.

Key Changes Effective January 2025

Adjustment of TDS/TCS on Non-Salary Income

Employers will now incorporate the tax already deducted or collected on non-salary income when calculating TDS on salaries. This amendment ensures that employees are not subjected to double taxation or over-deduction. For instance, if a salaried individual earns additional freelance income where TDS has already been deducted, the employer will adjust this while computing salary TDS, resulting in a lower TDS liability.

Example: Consider an employee earning ₹15,00,000 annually from their primary job and ₹3,00,000 in freelance income, on which ₹30,000 TDS has already been deducted. Under the new system, the employer will compute TDS on the total income of ₹18,00,000 while accounting for the ₹30,000 TDS already paid, resulting in a lower overall TDS deduction.

Enhanced Reporting in Form 24Q

The changes in Form 24Q include:

1. Column 388 (Previously Column 375): This column has been renumbered and renamed to report TDS deducted by other employers on income included in the total taxable salary.
2. Column 388A: A new column has been introduced to report TDS/TCS deducted by other deductors or collectors under Section 192(2B), ensuring a detailed breakdown of all taxes deducted on income.

These enhancements will simplify compliance for employers and improve transparency for tax authorities.

Increased Standard Deduction for the New Tax Regime

Employees opting for the new tax regime will benefit from an increased standard deduction of ₹75,000, up from ₹50,000. Employers must update payroll systems to reflect this change and ensure proper application of the deduction.

Submission of Form 12BAA

To avail of lower TDS deductions, employees must submit Form 12BAA to their employers, declaring any additional deductions or exemptions under the new tax regime. This ensures that employers can adjust TDS deductions accordingly, in line with Notification No. 112/2024-Income Tax, issued on October 15, 2024.

Updated Tools for Accurate Compliance

Protean's updated Return Preparation Utility (RPU) version 5.4 and File Validation Utility (FVU) version 8.9 became operational in December 2024. These tools will help employers file accurate TDS returns, incorporating the new provisions in Form 24Q. The new RPU can be downloaded from the official Protean website at https://www.protean-tinpan.com/downloads/e-ds/download/TDS_RPU_5.4.zip.

Updated TDS Certificates

TDS certificates issued from Q4 of FY 2024-25 onwards will reflect the new changes in the TDS calculation process. These certificates will provide employees with an accurate record of tax deductions, which will be crucial when filing income tax returns.

Impact on Employees and Employers

For Employees: The revised TDS framework benefits employees by reducing over-deduction and increasing take-home pay. The inclusion of TDS adjustments for non-salary income ensures that individuals are taxed more fairly, improving their cash flow.

For Employers: Employers will need to:

1. Update payroll systems to incorporate the changes in TDS calculations and standard deductions.
2. Use the updated TDS software for accurate filing and reporting.
3. Adjust salary TDS calculations to account for any TDS/TCS deducted on non-salary income.

Employers will also need to ensure that employees submit Form 12BAA to avail of lower TDS deductions under the new tax regime.

Conclusion

The TDS amendments effective from January 2025, while not major, represent a significant step toward enhancing the efficiency and fairness of tax deductions for salaried employees. By incorporating the TDS/TCS on non-salary income, these changes simplify the tax deduction process, reduce the financial burden on employees, and help improve the spending capacity of individuals by increasing their take-home pay.

Employers must adopt the new tools and software updates to file their TDS returns correctly, while employees must stay proactive in informing their employers about additional income and filing Form 12BAA for lower TDS deductions. By understanding these updates and adapting accordingly, both employers and employees can navigate the new TDS framework smoothly, ensuring compliance and maximizing tax efficiency.