TDS on Salary for FY 2024-25: Key Updates & How It Affects You
Introduction
The Central Board of Direct Taxes (CBDT) recently issued Circular No. 03-2025, providing comprehensive guidelines for Tax Deducted at Source (TDS) on salaries for the Financial Year (FY) 2024-25 (Assessment Year 2025-26). This circular ensures compliance with Section 192 of the Income-tax Act, 1961, integrating amendments from the Finance (No.2) Act, 2024, Finance (No.1) Act, 2024, and Finance Act, 2023.
In this article, we will cover:
✅ Key updates from Circular No. 03-2025
✅ Changes in tax slabs under the old and new tax regimes
✅ Leave encashment exemption increased to ₹25 lakh
✅ Impact of Agniveer Corpus Fund contributions
✅ How these changes affect salaried employees
Let’s dive into the details.
Overview of Circular No. 03-2025
Circular No. 03-2025, issued on February 20, 2025, provides a structured guide for employers to calculate TDS on salaries for employees in FY 2024-25. This circular incorporates major amendments to income tax rates, deductions, perquisites, and penalties.
📌 Important Highlights:
✔ New tax regime is now the default, but employees can opt for the old tax regime.✔ Tax-free income limit under the new regime remains ₹7 lakh due to Section 87A rebate.
✔ Leave encashment exemption limit increased to ₹25 lakh for non-government employees.
✔ Agniveer Corpus Fund contributions are fully tax-deductible.
✔ Employers must correctly compute TDS considering multiple income sources.
Now, let’s understand these changes in detail.
1. Changes in Tax Slabs (New vs. Old Tax Regime)
As per the Finance Act 2024, there are significant updates to the tax slabs for individuals choosing between the new and old tax regimes.
🔹 New Tax Regime (Default Option) - Section 115BAC
The new tax regime continues with concessional tax rates, with limited deductions and exemptions.
|
Annual Income |
Tax Rate (%) |
|
Up to
₹3,00,000 |
0% |
|
₹3,00,001
– ₹7,00,000 |
5% |
|
₹7,00,001
– ₹10,00,000 |
10% |
|
₹10,00,001
– ₹12,00,000 |
15% |
|
₹12,00,001
– ₹15,00,000 |
20% |
|
Above
₹15,00,000 |
30% |
💡 Rebate under Section 87A: Taxable income up to ₹7 lakh remains tax-free.
🚫 Limited deductions: Only employer contributions to NPS (Section 80CCD(2)) and Agniveer Corpus Fund (Section 80CCH) are allowed.
🔹 Old Tax Regime (With Deductions & Exemptions)
The old tax regime remains available, allowing deductions under Section 80C, 80D, HRA, and other exemptions.
|
Annual Income |
Tax Rate (%) |
|
Up to
₹2,50,000 |
0% |
|
₹2,50,001
– ₹5,00,000 |
5% |
|
₹5,00,001
– ₹10,00,000 |
20% |
|
Above
₹10,00,000 |
30% |
💡 Deductions Available:
✔ ₹1.5 lakh under Section 80C (LIC, EPF, PPF, etc.)✔ ₹50,000 under Section 80D (Health insurance)
✔ House Rent Allowance (HRA) exemption
✔ Home loan interest deduction (Section 24b)
📌 Choosing the Right Tax Regime
- If you claim high deductions, old tax regime is beneficial.
- If you prefer simpler tax calculations, go for the new tax regime.
2. Leave Encashment Exemption Increased to ₹25 Lakh
🔹 What’s New?
The leave encashment exemption limit for non-government employees has been increased from ₹3 lakh to ₹25 lakh at retirement.
💡 Example:
If a private sector employee retires with leave encashment of ₹30 lakh, now only ₹5 lakh will be taxable, compared to ₹27 lakh taxable earlier.
🚀 Benefit: This change provides huge tax savings for employees in the private sector!
3. Agniveer Corpus Fund Contributions: Fully Tax-Deductible
Circular No. 03-2025 introduces a new tax benefit under Section 80CCH for Agniveer Corpus Fund contributions.
✅ Employee Contributions: 100% tax-deductible under Section 80CCH(1)
✅ Government Contributions: Also 100% tax-deductible under Section 80CCH(2)
Who benefits?
- Agniveers enrolled in the Agnipath Scheme
- Defense personnel contributing to the fund
This move reduces taxable income and provides higher savings for individuals in the defense sector.
4. Practical Implications for Salaried Employees
📌 Key Takeaways:
🔹 Employers must compute TDS correctly based on the tax regime selected by employees.
🔹 Salaried individuals should compare the new and old tax regimes before making a decision.
🔹 Those retiring soon should take advantage of the ₹25 lakh leave encashment exemption.
🔹 Agniveers benefit from full tax deductions on their contributions.
🔹 Ensure correct TDS deductions to avoid penalties under Sections 271C & 276B.
Conclusion
The TDS guidelines for FY 2024-25 bring significant benefits for salaried employees with tax savings on leave encashment and Agniveer contributions. Employers must update their payroll systems to reflect the new rules and ensure proper TDS deductions.
📌 What should you do now?
✔ Review your salary structure and choose the best tax regime.✔ Check if you qualify for leave encashment exemption.
✔ Consult a tax expert for tax planning based on your income and investments.
Stay updated with the latest tax changes to optimize your savings!
📢 Share this article with your colleagues to help them understand TDS updates for 2024-25.