The Central Board of Direct Taxes (CBDT) has released Circular No. 3/2025, detailing the income tax deduction from salaries under Section 192 of the Income Tax Act, 1961, for the financial year 2024-25. This circular outlines amendments introduced through the Finance (No. 2) Act, 2024, Finance (No. 1) Act, 2024, and Finance Act, 2023 that impact tax deduction at source (TDS) for salaried employees.
Key Highlights of the Circular
1. Taxation of Salary and Perquisites
- Salary Definition: As per Section 17(1), salary includes contributions made by the Central Government to the Agniveer Corpus Fund under the Agnipath Scheme.
- Perquisites Valuation: Amendments in Section 17(2) specify that rent-free or concessional accommodation provided by the employer is taxable as per the prescribed rules.
2. Surcharge Rates for FY 2024-25 (Old Tax Regime)
The Finance (No.2) Act, 2024, has revised the surcharge rates applicable to high-income earners under the Old Tax Regime:
- 10% for income between Rs 50 lakh - Rs 1 crore
- 15% for income between Rs 1 crore - Rs 2 crore
- 25% for income between Rs 2 crore - Rs 5 crore (excluding certain capital gains)
- 37% for income above Rs 5 crore (excluding certain capital gains)
- 15% for income above Rs 2 crore, if it includes capital gains under Sections 111A, 112, or 112A
3. Income Tax Slabs under the New Tax Regime
For taxpayers opting for the New Tax Regime (Section 115BAC), the tax rates for Assessment Year 2025-26 remain:
- Up to Rs 3,00,000 - Nil
- Rs 3,00,001 - Rs 7,00,000 - 5%
- Rs 7,00,001 - Rs 10,00,000 - 10%
- Rs 10,00,001 - Rs 12,00,000 - 15%
- Rs 12,00,001 - Rs 15,00,000 - 20%
- Above Rs 15,00,000 - 30%
Rebate under Section 87A: Individuals earning up to Rs 7 lakh under the new tax regime can claim a full tax rebate.
4. Changes in Form 16 and Form 24Q
- Form 16: Modified with changes in reporting other tax deductions and perquisites.
- Form 24Q: Now includes a new column (388A) to report other TDS/TCS deductions.
5. Tighter Rules on TDS Non-Compliance
- Section 271C: Failure to deduct TDS under certain provisions will attract penalties.
- Section 276B: Non-payment of deducted tax may result in rigorous imprisonment ranging from 3 months to 7 years along with a fine.
6. Higher Exemption for Leave Encashment
Non-government employees can now claim an exemption of up to Rs 25 lakh on leave encashment at retirement, per CBDT Notification No. 31/2023.
Impact on Salaried Employees & Employers
- Employers need to ensure accurate tax deductions considering the revised surcharge rates and tax slab structures.
- Employees must choose between the old and new tax regime, considering their eligibility for deductions.
- The strict TDS penalty provisions mean businesses must comply with timely deductions and payments to avoid prosecution.
This circular provides clarity on TDS calculations and tax compliance for the current financial year. Taxpayers and employers should refer to the full circular on the Income Tax Department's website for further details.
Official copy of the circular has been attached
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