Contents
- Introduction: Navigating Salary TDS in India
- Overview of Key Changes for FY2025-26 Impacting Salaried Individuals
- Understanding Salary TDS Calculation Methods
- Choosing Your Regime: Old vs New Tax Regime Comparison
- TDS Forms, Procedures, and Important Updates for FY2025-26
- Frequently Asked Questions (FAQs)
- Conclusion: Making an Informed Choice
Introduction: Navigating Salary TDS in India
Tax Deducted at Source (TDS) is a fundamental mechanism in India for collecting income tax, particularly relevant for salaried individuals whose tax is deducted by employers directly from their paychecks. A clear understanding of these regulations is essential for both employers and employees to ensure accurate tax calculation and compliance.
This guide provides a detailed look at Salary TDS for the financial year 2025-26 (Assessment Year 2026-27).
Indian taxpayers currently have the flexibility to choose between two distinct tax regimes: the long-standing Old Tax Regime and the New Tax Regime, designed for potentially lower tax rates and a simpler structure. We will explore the specific changes in Salary TDS rules for FY2025-26, offer easy-to-follow guides for calculating TDS under both regimes, highlight the key distinctions, and cover updates in related forms and procedures.
Overview of Key Changes for FY2025-26 Impacting Salaried Individuals
The landscape of income tax regulations in India undergoes periodic revisions. For FY2025-26, several changes, directly or indirectly affecting Salary TDS, have been notified by the Income Tax Department.
Note: The Central Board of Direct Taxes (CBDT) has notified updated ITR forms 1 (Sahaj) and 4 (Sugam) for Assessment Year 2025-26, expanding eligibility.
A significant update allows individuals with Long-Term Capital Gains (LTCG) under Section 112A up to Rs 1.25 lakh to use the simpler ITR-1 or ITR-4 forms, streamlining the filing process for many salaried individuals who also have minor capital gains. While the core mechanism of salary TDS remains linked to prevailing income tax slabs, the structure of these slabs has changed, notably within the new tax regime.
Important Change: A key change directly affecting salaried individuals under the new regime is the increase in the standard deduction to Rs 75,000, effective from FY2024-25 onwards.
This enhanced standard deduction directly reduces taxable salary for those opting for the new regime. Additionally, thresholds for TDS on other income sources have been revised:
Table: Changes in TDS Threshold Limits for Various Payments
Note: These are general TDS threshold changes and not specific to salary TDS under Section 192, but may be relevant for individuals with other income sources.
| Section | Nature of Payment | Threshold Before FY2025-26 (Rs.) | Threshold From FY2025-26 (Rs.) |
|---|---|---|---|
| 193 | Interest on Securities | NIL | 10,000 |
| 194A | Interest other than on Securities | 40,000/50,000 (depending on payer/age) | 50,000/1,00,000 (depending on payer/age) |
| 194 | Dividend | 5,000 | 10,000 |
| 194I | Rent | 2,40,000 (annual) | 50,000 (per month) |
| 194J | Fees for Professional/Technical Services | 30,000 | 50,000 |
| 194T | Partner's Remuneration, etc. | NIL | 20,000 (annual aggregate) |
A new provision, Section 194T, introduces a 10% TDS on remuneration, interest, or commission paid by partnership firms to partners exceeding Rs 20,000 annually, representing a significant change in the broader TDS landscape for FY2025-26.
Understanding Salary TDS Calculation Methods
Your employer calculates Salary TDS under Section 192 based on your estimated annual income and your chosen tax regime's slab rates. Here's a breakdown of the process for each regime:
Under the Old Tax Regime (FY2025-26)
The calculation of Salary TDS under the Old Tax Regime for FY2025-26 follows these steps:
- Step 1: Determine Gross Salary: Includes basic pay, taxable allowances, perquisites, and bonuses.
- Step 2: Account for Exemptions: Deduct permissible exemptions claimed with proof (e.g., HRA, LTA).
- Step 3: Apply Standard Deduction: Deduct a standard deduction of Rs 50,000.
- Step 4: Consider Chapter VIA Deductions: Deduct eligible amounts under various sections like 80C, 80D, 80E, and 80G.
- Step 5: Calculate Taxable Income: Subtract total exemptions, standard deduction, and Chapter VIA deductions from gross salary.
- Step 6: Apply Old Regime Tax Slabs: Apply the slab rates based on your age group.
- Step 7: Add Cess: Add a 4% health and education cess (plus any applicable surcharge).
- Step 8: Apply Rebate if applicable: Rebate under Section 87A (Rs 12,500) for resident individuals with income up to Rs 5 lakh.
- Step 9: Determine Net Tax Liability: This is the final tax amount based on which TDS is deducted.
Under the New Tax Regime (FY2025-26)
Calculating Salary TDS under the New Tax Regime is simpler due to fewer deductions:
- Step 1: Determine Gross Salary: Includes all taxable salary components.
- Step 2: Apply Standard Deduction: Deduct the higher standard deduction of Rs 75,000.
- Step 3: Consider Limited Permitted Deductions: Only a few specific deductions are allowed (e.g., employer's NPS contribution, interest on home loan for let-out property).
- Step 4: Calculate Taxable Income: Subtract the standard deduction and other permissible deductions from gross salary.
- Step 5: Apply New Regime Tax Slabs: Apply the uniform income tax slab rates.
- Step 6: Apply Rebate if applicable: Rebate under Section 87A (Rs 60,000) for resident individuals with income up to Rs 12 lakh (effectively up to Rs 12.75 lakh for salaried).
- Step 7: Add Cess: Add a 4% health and education cess (plus any applicable surcharge).
- Step 8: Determine Net Tax Liability: This is the final tax amount.
Important: The new tax regime is now the default option for taxpayers. If you don't inform your employer, TDS will be based on the new regime.
Table: Income Tax Slabs for FY2025-26 (Both Regimes)
| Income Slab (Rs.) | Old Tax Regime (Rates %) | New Tax Regime (Rates %) |
|---|---|---|
| 0 - 2,50,000 | 0 | - |
| 2,50,001 - 3,00,000 | 5 | - |
| 3,00,001 - 4,00,000 | 5 | 0 |
| 4,00,001 - 5,00,000 | 5 | 5 |
| 5,00,001 - 8,00,000 | 20 | 5 |
| 8,00,001 - 10,00,000 | 20 | 10 |
| 10,00,001 - 12,00,000 | 30 | 15 |
| 12,00,001 - 15,00,000 | 30 | 15 |
| 15,00,001 - 16,00,000 | 30 | 20 |
| 16,00,001 - 20,00,000 | 30 | 20 |
| 20,00,001 - 24,00,000 | 30 | 25 |
| Above 24,00,000 | 30 | 30 |
Choosing Your Regime: Old vs New Tax Regime Comparison
The choice between the Old and New Tax Regimes is a crucial financial decision. The primary differences lie in tax rates, slab structures, and the availability of deductions and exemptions.
Key Differences Summarized
| Feature | Old Tax Regime | New Tax Regime |
|---|---|---|
| Income Tax Slabs | Fewer slabs, rates vary by age | More slabs, uniform rates for all ages |
| Standard Deduction (Salaried) | Rs 50,000 | Rs 75,000 |
| Availability of Deductions & Exemptions (e.g., HRA, LTA, 80C, 80D) | Wide Range Available | Very Limited (primarily Std. Deduction, Employer NPS, Let-out property home loan interest) |
| Rebate under Section 87A (for resident individuals) | Rs 12,500 (Income up to Rs 5 lakh) | Rs 60,000 (Income up to Rs 12 lakh) - Effective nil tax up to 12.75 lakh for salaried |
| Default Regime | No longer default | Default Regime |
Pros and Cons
Understanding the advantages and disadvantages of each regime can help you make an informed choice:
Old Tax Regime:
Pros:
- Potentially more tax-efficient for individuals with significant tax-saving investments and eligible expenses that lead to substantial deductions.
Cons:
- Tax rates at certain income levels can be higher compared to the new regime before accounting for deductions.
- Tax calculation is more complex due to the numerous deductions and exemptions.
New Tax Regime:
Pros:
- Often more beneficial for lower-income individuals, with an effective tax-free limit of Rs 12.75 lakh for salaried individuals due to the increased rebate and standard deduction.
- Offers a simpler and more straightforward tax calculation process.
- Generally results in lower tax liability, especially at higher income levels or when eligible deductions under the old regime are limited.
Cons:
- Restricts the ability to claim many popular deductions and exemptions available in the old regime.
Comparative Analysis of Salary TDS Calculations: Scenarios
These examples illustrate how tax liability can vary significantly based on income and chosen regime:
Scenario 1: Annual Income of Rs 8 Lakh
- Old Regime (with Rs 1.5 lakh 80C deductions): Taxable Income Rs 6 lakh. Approx. Tax: Rs 33,800.
- New Regime: Taxable Income Rs 7.25 lakh. Approx. Tax: Rs 44,200.
In this case, the Old Regime is slightly more tax-efficient assuming those deductions are claimed.
Scenario 2: Annual Income of Rs 15 Lakh
- Old Regime (with Rs 3 lakh total deductions): Taxable Income Rs 12 lakh. Approx. Tax: Rs 1,79,400.
- New Regime: Taxable Income Rs 14.25 lakh. Approx. Tax: Rs 97,500.
Here, the New Regime offers a significant tax saving.
Scenario 3: Annual Income of Rs 25 Lakh
- Old Regime (with Rs 4 lakh total deductions): Taxable Income Rs 21 lakh. Approx. Tax: Rs 4,60,200.
- New Regime: Taxable Income Rs 24.25 lakh. Approx. Tax: Rs 3,19,800.
The New Regime remains more beneficial at this higher income level.
TDS Forms, Procedures, and Important Updates for FY2025-26
Several procedural changes for FY2025-26 impact salary earners:
- Expanded eligibility for ITR-1 and ITR-4 to include individuals with LTCG under Section 112A up to Rs 1.25 lakh.
- New requirement to specify the section under which TDS is deducted in the TDS/TCS schedule for enhanced transparency.
- Form 10BA for claiming rent deduction under Section 80GG is only available under the old tax regime and must be filed electronically.
- ITR-4 now includes specific prompts regarding the chosen tax regime and filing of Form 10-IEA for opting out.
- Time limit for filing updated income tax returns (ITR-U) extended to 4 years from the end of the relevant assessment year.
- Employees use Form 12BB to declare deduction claims to employers. Employers issue Form 16 detailing income, deductions, and TDS.
Potential Future Change: The proposed new Income Tax Bill 2025 might remove 'nil TDS' certificates, potentially requiring individuals with no tax liability to file returns for refunds.
Frequently Asked Questions (FAQs) on Salary TDS for FY2025-26
What is the effective tax-free income limit under the new regime for FY2025-26?
For salaried individuals, the effective tax-free income limit under the new regime is Rs 12.75 lakh for FY2025-26, considering the increased rebate and standard deduction.
What are the standard deduction amounts for salaried individuals this year?
The standard deduction is Rs 50,000 under the old regime and Rs 75,000 under the new regime for salaried employees.
Is HRA exemption available under the new tax regime?
No, most common deductions and exemptions, including HRA and LTA, are not available under the new tax regime.
Which tax regime is the default option for FY2025-26?
The new tax regime is now the default option for taxpayers.
How does marginal relief work in the new tax regime?
Marginal relief ensures that if your income slightly exceeds the threshold for the increased rebate (Rs 12 lakh), the additional tax payable does not exceed the amount by which your income surpasses this threshold.
How do I inform my employer about my chosen tax regime?
It is crucial to inform your employer about your chosen tax regime at the beginning of the financial year to ensure accurate TDS deductions throughout the year. Failure to do so may result in TDS being deducted as per the default new tax regime.
Can I switch between tax regimes after informing my employer for TDS?
While the provided content doesn't explicitly detail mid-year switching for TDS, taxpayers can generally choose their preferred regime when filing their annual income tax return.
What documents are needed for deductions under the old regime?
Employees use Form 12BB to declare their claims for various deductions (such as HRA, LTA, home loan interest, and tax-saving investments) to their employers for TDS purposes.
Are there any deductions available under the new tax regime besides the standard deduction?
Yes, specific deductions like the employer's contribution to NPS under Section 80CCD(2) and interest on a home loan for a let-out property are still permitted.
How is Salary TDS reflected on payslips and Form 16?
Your payslip will typically show the monthly TDS deduction. Employers issue Form 16 annually, which serves as a certificate detailing your income, deductions, and the total TDS deducted.
Conclusion: Making an Informed Choice
For FY2025-26, Salary TDS calculations are significantly influenced by revised income tax slabs and the increased standard deduction, particularly within the New Tax Regime. The core difference between the Old and New Regimes lies in tax rates and, crucially, the availability of deductions and exemptions.
The New Regime offers simpler calculations and potentially lower taxes for many, especially with the higher standard deduction and increased rebate effectively making income up to Rs 12.75 lakh tax-free for salaried individuals. The Old Regime, while having fewer slabs and potentially higher rates, provides ample opportunity for tax reduction through a wide array of deductions.
Salaried individuals must carefully evaluate their financial situation, considering income level, potential deductions and exemptions, and their preference for simplicity versus maximizing deductions to determine the more beneficial regime. Informing your employer about your chosen regime at the beginning of the financial year is crucial for accurate TDS. Staying updated with official notifications from the Income Tax Department is also highly recommended.