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The Central Board of Direct Taxes (CBDT) has issued *Circular No. 3/2025, providing crucial updates on *Tax Deducted at Source (TDS) on salaries for the financial year *2024-25. This circular incorporates amendments from the **Finance (No. 2) Act, 2024, **Finance (No. 1) Act, 2024, and *Finance Act, 2023. Here’s a simplified breakdown of the key changes and what they mean for employers and employees.  

1. Salary and Perquisites: What’s Included?

• Salary Definition (Section 17):  

• • Salary now includes Central Government contributions to the Agniveer Corpus Fund for individuals enrolled in the Agnipath Scheme (Section 80CCJJ). 

• Perquisites for accommodation:  

a)Where accommodation is owned by employer:

• • Rent-free accommodation (Unfurnished): Valued at 10%, 7.5%, or 5% of salary, depending on the city’s population.  
  • Rent-free accommodation(furnished): 10% of the cost or actual hire charges. 

b)Where accommodation is taken on lease/rent by employer:

• • Rent-free accommodation (Unfurnished): Actual amount of lease rental paid/payable by employer or 10% of salary w.e. less as reduced by rent actually paid by employee
  • Rent-free accommodation(furnished): Value as determined above + increase of 10%p.a. of cost of furniture(for hired furniture – actual hire charges payable reduced as paid by employee)
     

2. Tax Regimes and Rates

• Old Tax Regime (Surcharge Rates): 
• • Income Slabs & Surcharge Rates:  

1. 1. ₹50 lakh – ₹1 crore: 10%  
   2. ₹1 crore – ₹2 crore: 15%  
   3. ₹2 crore – ₹5 crore (excluding dividends or income U/s 111A/112/112A): 25%  
   4. Above ₹5 crore (excluding dividends or income U/s 111A/112/112A):37%  
   5. Above ₹2 crore(including dividend or income U/s 111A/112/112A), not covered under (c) & (d) above:15%

• New Tax Regime (Section 115BAC): 
  • Tax Slabs:  

• • Up to ₹3 lakh: Nil  

• • ₹3–7 lakh: 5%  

• • ₹7–10 lakh: 10%  

• • ₹10–12 lakh: 15%  

• • ₹12–15 lakh: 20%  

• • Above ₹15 lakh: 30% 
    *Exclusions: No deductions under most sections (e.g., HRA, LTA, 80C), except for *Agniveer Scheme contributions. 

3. Exemptions and Deductions

• Leave Encashment (Section 10(10AA)):  

• • Exemption limit: ₹25 lakh for non-government employees (CBDT Notification No. 31/2023)

• Agnipath Scheme (Section 80CCJJ & 10(12C)):  

• • Deduction: Full contribution to Agniveer Corpus Fund (employee + Central Govt.).  

• • Exemption: Payments from Agniveer Fund to enrolled individuals/nominees. 

4. Rebates (Section 87A)

Individuals earning up to Rs 7 lakhs under the new tax regime can claim a full tax rebate of 100% of Income Tax or (Rs. 25000/- w.e. less) Individuals earning more than Rs 7 lakhs can deduct the amount by which the tax payable exceeds the excess income over 700,000 rupees.

5. TDS Compliance

• Section 192(2B): Employers must consider:  

• • Employee’s other income (except salary).  

• • House property loss and TDS/TCS credits. 

• Forms:  

• • Form 16: Updated for FY 2024-25 (Annexure-A of circular).  

• • Form 24Q: Includes “Health & Education Cess” and new columns for tax details. 

6. Penalties

• Section 271C: Penalty = Tax not deducted/paid.  

• Section 276B: Rigorous imprisonment (3 months–7 years) + fine for TDS default.  

• • Relief: No penalty if tax paid before filing TDS statement. 

The Circular No. 3/2025 provides clarity on TDS compliance for FY 2024-25, incorporating amendments from recent Finance Acts. Employers must ensure accurate TDS deductions, considering the updated tax regimes, exemptions, and penalties. Employees should review their salary structures and tax-saving options to optimize their tax liabilities.  

For detailed compliance, refer to the full circular and updated rules on the Income Tax Portal. Stay informed, stay compliant!