The New Income Tax Act 2025 has brought significant changes to Tax Deducted at Source (TDS) on salary. Here’s what you need to know:
Key Highlights:
(a) Increased Exemption Limit: The basic exemption limit for TDS on salary has been increased to ₹4 lakhs under the new tax regime.
(b) Average Rate of Tax: Employers will deduct TDS at the average rate of income tax applicable to an employee’s total income, including perquisites.
(c) Standard Deduction: The standard deduction has been raised to ₹75,000, reducing taxable income and tax deduction .
TDS Rates for Salary Income:
- Up to ₹4 lakhs: No TDS
- ₹4 lakhs to ₹8 lakhs: 5% tax
- ₹8 lakhs to ₹12 lakhs: 10% tax
- ₹12 lakhs to ₹16 lakhs: 15% tax
- ₹16 lakhs to ₹20 lakhs: 20% tax
- Above ₹24 lakhs: 30% tax
Calculating TDS on Salary:
To calculate TDS, employers will:
1. Estimate the employee’s total income for the financial year.
2. Deduct standard deductions and exemptions.
3. Calculate the average rate of tax based on the employee’s total income.
4. Deduct TDS monthly based on the average rate .
Example:
For an employee with an estimated salary of ₹9,50,000 and no other income, the TDS would be calculated as follows :
– Total Income: ₹9,50,000
– Tax Payable: ₹65,000
– TDS deducted on other sources: ₹8,000
– Net Tax payable: ₹57,000
– Average Rate of TDS: 6%
Changes in TDS Thresholds:
The government has revised TDS exemption limits for various income sources, including:
– Interest Income: ₹1,00,000 for senior citizens and ₹50,000 for others
– Dividend Income: ₹10,000
– Commission and Brokerage: ₹20,000
Impact on Salaried Employees:
The new TDS rules on salary will benefit middle-income earners with increased exemptions and reduced tax liabilities. However, employees must ensure accurate TDS deduction and compliance to avoid any penalties .
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