Understanding CBDT Circular No. 3/2025: TDS on Salaries, Tax Regimes, and Compliance

Download Circular No. 3/2025

Overview

To give comprehensive instructions on how to deduct income tax from salaries under Section 192 of the Income-tax Act, 1961 for the Financial Year (F.Y.) 2024–2025, the Central Board of Direct Taxes (CBDT) released Circular No. 3/2025 on February 20, 2025. The tax deduction procedure, appropriate rates, employer obligations, and required compliance steps are all described in this circular.

Important Points of Circular No. 3/2025

Salaries with Tax Deduction at Source (TDS)

• During fiscal year 2024–2025, employers must deduct taxes at the source when paying employees' salary.
• Under both the new and old tax systems, TDS should be calculated using the corresponding income tax slab rates.

Selecting Between the Old and New Tax Regimes

• Workers have a choice between:
  • The new tax regime (under Section 115BAC) imposes lower tax rates but eliminates deductions and exemptions.
  • The previous tax code allowed for many deductions and exemptions.
• Employers must seek a statement from workers indicating their preferred tax system at the start of the fiscal year.

Income-Tax Slab Rates for FY 2024-25

New Tax Regime (default Option):

• Income: Up to ₹3,00,000 - Nil
• ₹3,00,001 to ₹6,00,000 - 5%
• ₹6,00,001 to ₹9,00,000 - 10%
• ₹9,00,001 to ₹12,00,000 - 15%
• ₹12,00,001 to ₹15,00,000 - 20%
• Above ₹15,00,000 – 30%

Old Tax Regime:

• The slab rates remain unaltered and allow deductions for HRA, LTA, Section 80C, 80D, and so forth.

Deductions and exemptions (Old Regime Only)

• Standard Deduction: ₹50,000.
• Section 80C: ₹1,50,000 for PF, PPF, LIC, etc.
• Section 80D: Medical Insurance Premium Deductions
• House Rent Allowance (HRA): Exemption provided under the regulations.
• Leave Travel Allowance (LTA): Allows for certain travel expenditures.

Responsibility of Employers

• Calculate each employee's tax liability based on stated deductions (assuming the previous regime is used).
• Ensure that TDS is deposited on time with the government.
• File quarterly TDS returns (Form 24Q) and provide Form 16 to workers on the due date.

Submission of Investment Proofs

• To claim deductions under the former tax scheme, employees must provide verifiable verification of their investments.
• Employers must check these proofs before computing their ultimate tax liability.

Tax Deduction for Senior Citizens and Women Employees

• Senior persons (over the age of 60) and super seniors (over the age of 80) have higher exemption limitations.
• There are no additional tax benefits for female employees.

Penalties for Noncompliance

• Failure to deduct or submit TDS may result in interest fines and punishment under the Income Tax Act.
• Employers who fail to comply may have their pay costs disallowed.

Conclusion

CBDT Circular No. 3/2025 establishes a comprehensive framework for income-tax deduction on salaries for Fiscal Year 2024-25. Employers must guarantee precise tax computation, appropriate declaration collection, and timely TDS payment to avoid fines. To minimize their tax payments, employees should make educated selections about which tax regime to choose. Compliance with these principles promotes efficient payroll management and conformance to income-tax requirements.

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