The Central Board of Direct Taxes (CBDT) has released Circular No. 3/2025, citing the income tax deduction from salaries u/s 192 of the Income Tax Act, 1961, for the financial year 2024-25.
The same circular specifies the changes introduced via 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.
Major Highlights of Circular
Here are some major highlights of Circular No. 3/2025 for taxpayers:
Amendment in Form 16 and 24Q
- Form 24Q: Now comprises a new column (388A) to report other TDS/TCS deductions.
- Form 16: Modified with the amendments in reporting other tax deductions and perquisites.
Taxation of Salary and Perquisites
- Perquisites Valuation: It was mentioned by the amendments in section 17(2) that rent-free or concessional accommodation furnished via the employer is levied to tax under the specified norms.
- Salary Description: As per Section 17(1), salary contains contributions made by the Central Government to the Agniveer Corpus Fund under the Agnipath Scheme.
Income Tax Slabs Under NTR
For the taxpayers choosing the New Tax Regime (Section 115BAC), the tax rates for Assessment Year 2025-26 remain:
| Income | Tax Rate |
|---|---|
| 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% |
Tax Rebate Under Section 87A: Under the new tax regime Individuals earning up to Rs 7 lakh can claim a full tax rebate.
Higher Income Tax Exemption for Leave Encashment
Per CBDT Notification No. 31/2023, non-government employees on leave encashment at retirement can claim an exemption of up to Rs 25 lakh.
Surcharge Rates for FY 2024-25 (OTR)
The Finance (No.2) Act, 2024, has amended the surcharge rates applicable to high-income earners under the Old Tax Regime:
- 15% for income between Rs 1 crore – Rs 2 crore
- 25% for income between Rs 2 crore – Rs 5 crore (excluding certain capital gains)
- 10% for income between Rs 50 lakh – Rs 1 crore
- 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
Stringent Rules on TDS Non-Compliance
- Section 271C: Unable to deduct TDS under specific provisions will draw penalties.
- Section 276B: Non-payment of deducted tax may result in strict imprisonment ranging from 3 months to 7 years and a fine.
Effect on Salaried Employees and Employers
- Employers are required to ensure the precise tax deductions acknowledging the revised surcharge rates and tax slab structures.
- The employees considering their eligibility for deductions should opt between the old and new tax regimes.
- The stringent TDS penalty provisions directed the businesses should follow with the timely deductions and payments to prevent the prosecution.
The circular provides clarity on TDS calculations and tax compliance for the current financial year. For further information, taxpayers and employers should refer to the full circular on the income tax department’s website.
