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The Union Budget for FY 2025-26 was tabled in the Parliament by the Finance Minister of India on 01-Feb-2025. Here are the key proposals related to computation of tax on salary which payroll managers need to consider for FY 2025-26, effective 01-Apr-2025.

Changes to tax slabs under the new regime

Section 115BAC (New Regime) allows employees to opt for lower tax rates (as against the rates under the old regime) subject to their foregoing certain exemptions / losses / deductions. For FY 2025-26, the slab rates under the new regime have been modified as follows.

Total Annual Income (Rs)	New Regime (%) – FY 2025-26
Up to 4,00,000	Nil
4,00,001 to 8,00,000	5
8,00,001 to 12,00,000	10
12,00,001 to 16,00,000	15
16,00,001 to 20,00,000	20
20,00,001 to 24,00,000	25
Above 24,00,000	30

As in FY 2024-25, the new regime shall be the default regime for tax calculation for FY 2025-26. In other words, if an employee does not specify their preference with regard to the regime for tax calculation, the employer shall use the New Regime for the purpose of tax calculation.

Rebate under Section 87A increases for the New Regime

The rebate under section 87A has been increased to Rs 60,000 for FY 2025-26 (it was Rs 25,000 for Rs FY 2024-25).  This means that employees with up to Rs 12 lakh as the total income (after all deductions and exemptions) will have zero tax liability. Please note that the enhancement in Section 87A relief shall be available only for the New Regime in FY 2025-26. For the Old Regime, the Section 87A relief shall remain the same as that for FY 2024-25.

Marginal Relief continues to be available

Please note that the calculation of tax under the New Regime is subject to the application of marginal relief if the income goes above Rs 12 lakh.

Surcharge stays unchanged

Rates of surcharge under the new regime remain the same as they were in FY 2024-25.

Health and Education Cess stays unchanged

The “Health and Education Cess” stays at 4% on income tax and surcharge, if applicable.

Slab rates for the Old Regime remain the same

The tax rates for salaried employees below 60 years of age for FY 2025-26 shall be the same as those for FY 2024-25.

The tax rates (for FY 2025-26) for salaried employees below 60 years of age shall be as follows.

Total Income for the Year in Rs	Tax Rate in %
Up to 2,50,000	Nil
2,50,001 to 5,00,000	5
5,00,001 to 10,00,000	20
Above 10,00,000	30

The tax rates (for FY 2025-2026) for salaried employees aged 60 years and above but below 80 years shall be as follows.

Total Income for the Year in Rs	Tax Rate in %
Up to 3,00,000	Nil
3,00,001 to 5,00,000	5
5,00,001 to 10,00,000	20
Above 10,00,000	30

Rebate under Section 87A, surcharge and education cess remain the same under the old regime. 

Benefit under 80CCD(1B) to include contributions made to NPS Vatsalya Account

The scope of benefits under Section 80CCD (1B) has been broadened to include contributions to NPS Vatsalya accounts. However, this benefit is available only for employees opting for the old tax regime. 

Annual value of house property – Section 23(2)

With regard to house properties owned by employees, a maximum of 2 house properties can be declared as self-occupied. Beyond 2 properties, any house property, even if it is self-occupied, should be declared as let-out and the deemed rental value should be calculated. This rule shall be continued with in FY 2025-26. 

Currently, a property can be declared as self-occupied only if an employee occupies the house-property or is unable to occupy the same on account of work-related stay in another location. For FY 2025-26, a property can be declared as self-occupied for any reason in addition to the reasons specified in the previous sentence.

The inexorable shift to the new tax regime

With the reduction in the slab rates under the new regime, we expect almost all employees who chose the old regime in FY 2024-25 to shift to the new regime in FY 2025-26. The slab rates under the new regime have been reduced to such an extent that the tax calculated under the old regime will be higher for most employees even if they avail all exemptions and deductions such as those under Section 10 and Chapter VI of the Income Tax Act.

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The Greater Chennai Corporation, by way of a council resolution (No. 574/2024, dated 30-Dec-2024), has made changes to Profession Tax. The revised tax slabs for salaried employees in Chennai are as follows.

Salary for the half year in Rs	Profession Tax for the half year in Rs
Less than or equal to 21,000	Nil
21,001 – 30,000	180
30,001 – 45,000	430
45,001 – 60,000	930
60,001 – 75,000	1025
75,001 and above	1250

The new Profession Tax rates are effective from the second half (Oct 2024 to Mar 2025) of the financial year 2024-25. Payroll managers need to ensure that the profession tax deduction for Chennai-based employees is carried out as per the above slabs for Oct 2024 to March 2025 half-year.

You can download the resolution (page 128) here.

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The pandemic situation on account of COVID-19 has imposed severe travel restrictions on people all over India. In the current financial year (2020-21), most employees wouldn’t be able to claim tax benefit on LTA. The Government of India, in a bid to address the issue of tax exemption on LTA and in order to boost consumption, has announced that salaried employees can buy goods and services in lieu of incurring expenses on leave travel and use the expenditure information for availing tax benefit. The Government of India calls this “LTC Cash Voucher Scheme” and has extended the tax benefit from this scheme to private sector employees as well. You can read the press release here.

Let us take a look the conditions for availing this benefit.

Can an employee avail this benefit during the current block (2018-21)?

Yes, they can. However, if an employee has availed (prior to FY 2020-21) the maximum permissible number of tax exemptions (twice) for the block period 2018-21, they cannot avail tax benefit under this scheme. An employee needs to have at least one exemption in the block period (2018-21) to be able to avail tax exemption under the scheme.

What kind of expenditure is eligible for this scheme?

The Government of India has not notified an exhaustive list of permissible expenditures. Any expenditure (goods or services) can be considered for this purpose as long as the GST on the expenditure is 12% or higher. This means that employees should buy the goods or services only from registered GST vendors.

When should the expenditure be incurred and what should the mode of payment be?

The expenditure should be incurred between 12-Oct-2020 (date of Government of India circular announcing the scheme) and 31-Mar-2021. In other words, the invoice /receipts for the expenditure should contain a date between 12-Oct-2020 and 31-Mar-2021 (both dates included).

The payment should be made by way of a digital payment (credit/debit cards, UPI, Wallets, Net/mobile banking, etc.). Payment by cash cannot be considered as digital payment.

How much should an employee spend on goods/services under this scheme?

The employee should spend a sum which is equal to three times the LTA amount received by the employee.  For example, if an employee receives Rs 30,000 as LTA, they should spend Rs 90,000 (Three times Rs 30,000) to avail full benefit under the scheme. In case the employee spends less than thrice the LTA amount, the tax benefit shall be reduced proportionately. For example, if the employee spends only Rs 45,000 (instead of Rs 90,000), the tax benefit will be available only to the extent of 50%, i.e. Rs 15,000 in the example stated above.

What is the maximum benefit available?

The Government of India has notified that irrespective of the actual LTA amount paid to an employee, a maximum of Rs 36,000 per person shall be available as the benefit. The term person refers to a person in the employee’s family as per Section 10(5) of the Income Tax Act which specifies rules related to tax exemption on LTA. For example, if the employee has 4 members in his family, the maximum benefit the employee can avail is Rs 144,000 (Rs 36,000 x 4), in case the actual LTA amount paid is higher than Rs 144,000. In addition, the employee has to spend Rs 4,32,000 (3 times Rs 144,000) in order to avail 100% tax benefit on the expenditure.

Can an employee make multiple purchases of good/services?

Yes, employees can submit multiple invoices/receipts for this scheme. However, the dates of all the invoices/receipts should fall between 12-Oct-2020 and 31-Mar-2021.

Are purchases made on an EMI basis eligible?

Yes, purchases made on an EMI basis can be considered as long the date of purchase is between 12-Oct-2020 and 31-Mar-2021.

Should employees submit invoices/receipts to the employer?

The original GST invoice/bill /receipt or a self-attested copy of the GST invoice/bill/receipt should be submitted by the employee. 

The invoice/bill/receipt should be in the name of the employee or their family members.

What about employees who have opted for the Simplified Tax Regime?

Employees who have opted for the Simplified Tax Regime (under Section 115BAC of the Income Tax Act) cannot avail tax benefit under this scheme.

 

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The Union Budget for FY 2020-21 was tabled in the Parliament by the Finance Minister of India on 01-Feb-2020. Here are the key proposals related to computation of tax on salary which payroll managers need to consider for FY 2020-21, effective 01-Apr-2020.

Introduction of lower tax slabs

The Finance Minister has introduced Section 115BAC, which allows employees to opt for lower tax rates subject to their foregoing certain exemptions/losses/deductions. In case, an employee wishes to claim deductions/exemptions, the existing tax rates and slabs will continue to apply.

The tax slabs under the new regime and the current regime are as follows.

Total Annual Income (Rs)	New Regime (%)	Current Regime (%)
Up to 2,50,000	Nil	Nil
2,50,001 to 5,00,000	5	5
5,00,001 to 7,50,000	10	20
7,50,001 to 10,00,000	15	20
10,00,001 to 12,50,000	20	30
12,50,001 to 15,00,000	25	30
Above 15,00,000	30	30

How should an employee make the choice between the current and the new tax slabs?

Let us assume that an employee’s gross salary is Rs 12,60,000 per annum. If the employee does not seek deductions/exemptions, their taxable salary shall be Rs 12,60,000 and hence they would fall under the 25% slab in the new tax regime (see the above table) as against the 30% bracket in the current tax slabs. In this case, the employee is better off choosing the new tax regime.

In case the employee is eligible to avail, say Rs 3,00,000 in tax benefits by way of exemptions/deductions, their taxable salary under the old regime shall be Rs 9,60,000, which falls under the 20% bracket in the old regime. Hence, the employee, in such a case, is better off choosing the old regime.

Employees, after considering their gross salary and the available exemptions/deductions, should calculate their total tax liability under both regimes and choose that which would be beneficial to them.

Benefits which are not available under the new tax regime

In case an employee opts for the lower tax rates, the below exemptions and deductions will not be available (as per section 115BAC) for consideration while computing the taxable income.

1. House Rent Allowance exemption under section 10(13A).
2. Tax exemption for Leave Travel Assistance available under section 10(5).
3. Deductions under Chapter VIA – this includes section 80C deductions such as life insurance premium payments, which are among the most availed by employees. Deduction in respect of employers’ contribution to NPS under section 80CCD(2) is available under the new tax regime.
4. Specific allowances under section 10(14) to be prescribed by the Income Tax Department.
5. Standard deduction and professional tax deduction under section 16.
6. Housing loan benefit – Interest paid on housing loan under section 24(b) on self-occupied property and losses under the head “house property”.

Employees need to exercise the option between the current tax regime and the new tax regime prior to filing their return for the year. In case an employee has business income, then the employee should stick to the tax regime they opt for until the year they cease to have business income.

Please request your employees to specify their choice with regard to the tax regime they wish to be considered under and deduct tax on their salary accordingly.

Section 80EEA – First time home buyer

The benefit of Rs 1,50,000 on interest payment towards housing loan taken by first home buyers is now available for loans sanctioned until 31-March-2021.

TDS in case of no PAN

Section 206AA has been modified to 5% instead of 20% in case of an employee not furnishing the PAN.

Modification to Section 17

Any amount or the aggregate of amounts of any contribution, in excess of Rs 7,50,000, made to the account of the employer by the employer–– (a) in a recognised provident fund; (b) in the scheme referred to in sub-section (1) of section 80CCD; and 10 (c) in an approved superannuation fund, shall be considered as taxable income.

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The interim Union Budget for FY 2019-20 was tabled in the Parliament by the Finance Minister of India on 01-Feb-2019. Here are the key proposals related to computation of tax on salary which payroll managers need to consider for FY 2019-20, effective 01-Apr-2019.

Note: This post has been updated to include the proposals tabled by the Finance Minister on July 5, 2019.

1. Tax slabs remain the same

The tax rates for salaried employees below 60 years of age for FY 2019-20 shall be the same as those for FY 2018-19.

The tax rates (for FY 2019-20) for salaried employees below 60 years of age are as follows.

Total Income for the Year in Rs	Tax Rate in %
Up to 2,50,000	Nil
2,50,001 to 5,00,000	5
5,00,001 to 10,00,000	20
Above 10,00,000	30

The tax rates (for FY 2019-20) for salaried employees aged 60 years and above but below 80 years are as follows.

Total Income for the Year in Rs	Tax Rate in %
Up to 3,00,000	Nil
3,00,001 to 5,00,000	5
5,00,001 to 10,00,000	20
Above 10,00,000	30

2. Surcharge changes

In case the total taxable income for the year goes beyond Rs 50 lakh but is less than or equal to Rs 1 crore in the year, a surcharge of 10% (subject to marginal relief) on the income tax is to be deducted, as it was in FY 2018-19.

In case the total taxable income for the year goes beyond Rs 1 crore but is less than or equal to Rs 2 crore in the year, a surcharge of 15% (subject to marginal relief) on the income tax is to be deducted – the surcharge was 15% in FY 2018-19 too.

In case the total taxable income for the year goes beyond Rs 2 crore but is less than or equal to Rs 5 crore in the year, a surcharge of 25% (subject to marginal relief) on the income tax is to be deducted – the surcharge was 15% in FY 2018-19.

In case the total taxable income for the year goes beyond Rs 5 crore, a surcharge of 37% (subject to marginal relief) on the income tax is to be deducted – the surcharge was 15% in FY 2018-19.

3. Health and Education Cess stays unchanged

The “Health and Education Cess” stays at 4% on income tax and surcharge, if applicable.

4. Increase in rebate under Section 87A

The maximum tax rebate under Section 87A has been increased to Rs 12,500. The limit was Rs 2,500 for FY 2018-19. An employee’s net taxable income after all deductions (including Standard Deduction and Chapter VIA deductions) should not exceed Rs 5,00,000, for the employee to be able to avail the rebate under Section 87A in 2019-20.

5. Increase in Standard Deduction

In the 2019-20, the Standard Deduction shall be Rs 50,000. In 2018-19, the Standard Deduction was Rs 40,000.

6. No notional income on the second self-occupied house property

In 2018-19, an employee could specify only one house property as “self-occupied”. In case the employee owned 2 properties which were not let-out – in other words, the employee occupied one property and kept the other locked, the employee could declare only one property as self-occupied for which the annual value is zero. With regard to the second property (which was kept locked), the employee had to present a notional rental value and consider it as an income from house property.

In 2019-20, an employee can declare up to 2 properties as self-occupied for which the income (from house property) shall be zero.

7. Section 80EEA – First time home buyer

Section 80EEA – The budget provides for a benefit of Rs 1,50,000 on interest payment towards housing loan taken by first home buyers subject to the following conditions.

a. The benefit shall be available from FY 2019-20 and continued with in subsequent years until the limit of Rs 1,50,000 is attained. Please note that this benefit is in addition to the interest benefit provided by Section 24 of the Income Tax Act.

b. The housing loan should be sanctioned by a financial institution during the period beginning on the 1st day of April, 2019 and ending on the 31st day of March, 2020.

c. The stamp value of the of the residential house property should not exceed Rs 45 lakh.

d. The employee should not own any residential house property on the date of sanction of loan.

e. The employee should have taken the housing loan from a financial institution (a banking company to which the Banking Regulation Act, 1949 applies, or any bank or banking institution referred to in section 51 of that Income Tax Act or a housing finance company).

The Finance Bill states that the assessee should not own any residential house property on the date of sanction of loan. Does this mean that an assessee could have owned and sold a house property prior to the date of sanction of loan and still be eligible for this benefit? The Finance Bill does not explicitly state that the employee should be first time home buyer to be eligible for this benefit. However, since Section 80EE provides the benefit to a first-home buyer, we presume that the same can be applied to Section 80EEA. Hence, we are of the view that an employee should not be owning or have owned any house property at the time of or prior to the date of sanction of the loan in order to be eligible for Section 80EEA benefit.

7. Section 80EEB – Electric Vehicle

Section 80EEB – The budget provides for a benefit of Rs 1,50,000 on interest payment towards loan taken by buyers of an electric vehicle, subject to the following conditions.

a. The benefit shall be available from FY 2019-20 and continued with in subsequent years until the limit of Rs 1,50,000 is attained.

b. The loan should be sanctioned by a financial institution during the period beginning on the 1st day of April, 2019 and ending on the 31st day of March, 2023.

c. “Electric vehicle” means a vehicle which is powered exclusively by an electric motor whose traction energy is supplied exclusively by traction battery installed in the vehicle and has such electric regenerative braking system, which during braking provides for the conversion of vehicle kinetic energy into electrical energy.

d. The employee should have taken the loan from a financial institution (a banking company to which the Banking Regulation Act, 1949 applies, or any bank or banking institution referred to in section 51 of that Income Tax Act or a housing finance company).

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The Income Tax Department has issued the “TDS on Salary” circular for FY 2018-19. You can take a look at it here.

Please ensure that all tasks (income tax deduction, investment proof scrutiny, etc.) related to salary TDS compliance in your organization for FY 2018-19 are carried out as per the circular.

Para 4.6.4.3 in the circular

The due date for issuance of Form No. 16 is 31-May as per the circular. Given that the last day for filing Form 24Q for the fourth quarter is 31-May, the Income Tax Department notified 15-June as the deadline for Form 16 issuance last year. We request the Income Tax Department to notify 15-June as the deadline for Form 16 issuance for FY 2018-19 too.

Para 5.3.2 in the circular – Death-cum-retirement gratuity or any other gratuity

This para incorrectly states that the tax exemption limit for gratuity payment to an employee is Rs 10 lakh.

Para 5.3.2 states:

Presently the limit is Rs. 10 lakhs w.e.f. 24.05.2010 [Notification no. 43/2010 S.O. 1414(E) F.No. 200/33/2009-ITA-1 dated 11th June 2010]..

The exemption limit for gratuity as on the date of this circular is Rs 20 lakh and not Rs 10 lakh.

Para 5.5.5 in the circular – Section 80D

Section 80D has been modified to allow tax benefit on medical expenditure incurred on senior citizens (employee or employee’s parents who are 60 years or more in age) in FY 2018-19, subject to certain conditions. In FY 2017-18, the tax benefit on medical expenditure was restricted to very senior citizens (80 or more in age).

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State Bank of India (SBI) published the reference lending rates for the purpose of loan perquisite calculation for the financial year 2018-19 on its website a few days ago. You can find the SBI rates as on 01-Apr-2018 here.

SBI provides reference rates for different types of loan (home loan, car loan etc.). Employers should use the correct reference rate for the purpose of perquisite calculation. For example, if a car loan is provided to an employee, the reference rate for perquisite calculation shall be the SBI car loan rate.

Reference rate for personal loan provided to employees

SBI’s loan product called “Xpress Credit” corresponds to personal loans provided by employers to their employees. Unlike last year (FY 2017-18) when SBI referred to 3 categories of reference rates – Full Check-off, Partial Check-off, and No Check-off, this year (FY 2018-19) the personal loan rates have been classified differently.

Let us take a look at the below table which presents personal loan rates which must be used by the large majority of the organizations for the purpose of perquisite calculation.

The table above presents the basis of which SBI determines the lending rate for an individual who applies for a personal loan with the bank. Any organization which uses the above table to determine the perquisite rate needs to know the following.

1. ECR – Refers to the employer’s credit rating.

2. CIBIL TU Score – Refers to the CIBIL score of the employee for whom the loan perquisite is sought to be determined.

For example, if your company’s credit rating is A- and the employee’s CIBIL score is 750, the reference rate for perquisite calculation shall be 11.65% for the year.

There are a few issues with the reference rates published by SBI.

1. For unrated companies, SBI does not provide reference rates if an employee’s CIBIL score is lower than 700. This probably means that SBI would not lend to an individual who works for an organization which has no credit rating and whose CIBIL score is lower than 700. But in reality, there are many unrated organizations which may provide loans to employees whose CIBIL rating may be lower than 700. What should be the reference rate for such instances?

2. SBI does not provide reference rates for employees who do not have CIBIL score. What should organizations do in such instances? It looks as though employers should ask employees to make an application to CIBIL and receive a score for the purpose of loan perquisite value calculation.

3. If an employee does not have a CIBIL score on account of insufficient credit history, what should be the reference rate?

The Income Tax Department should address the above issues and clarify on how employers should arrive at the perquisite rate for FY 2018-19 if an employee does not have a CIBIL score.

For personal loans, SBI publishes rates for a variety of its schemes such as XPRESS Credit, XPRESS Credit – IT Employees, and XPRESS Elite. This makes it complex for employers to identify the correct perquisite rate for its employees. Ideally, the Income Tax Department should simplify the process by publishing a single loan perquisite rate for all personal loans.

You can read about how to calculate perquisite value on loan provided to employees in this blog post.

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