Tax compliance is an integral part of financial planning, and recent changes introduced by the government aim to simplify this process for salaried individuals. Starting October 1, 2024, employers are required to consider New TDS/TCS Rules and deductions on non-salary income when calculating TDS on salaries. This initiative, combined with updated reporting mechanisms and enhanced tax benefits.

This ensures a fairer taxation system for employees while streamlining compliance for employers. Let’s dive into the details of these changes and what they mean for both employees and employers.

Simplified TDS/TCS Adjustments: New Rules Effective January 2025

Key Updates Effective January 2025

1. Adjustment of TDS/TCS on Non-Salary Income

One of the most significant changes is the mandate for employers to adjust salary TDS. By accounting for TDS/TCS already deducted from non-salary income. This prevents employees from facing excessive deductions and potential cash flow issues. For instance, if an employee earns freelance income where TDS has already been deducted. The employer will now factor this into salary TDS calculations, reducing the overall TDS liability. This adjustment ensures that employees are not subjected to double taxation or over-deduction.

2. Enhanced Reporting in Form 24Q

To facilitate these adjustments, changes have been made to Form 24Q, the quarterly TDS statement:

• Column 388 (Previously Column 375): Renumbered and updated to report TDS deducted by other employers on income included in the employee’s taxable salary.
• Column 388A: A new column introduced to report TDS/TCS deducted by other entities under Section 192(2B). Thus, providing a detailed breakdown of all taxes deducted.

These changes simplify compliance for employers while enhancing transparency for tax authorities.

3. Increased Standard Deduction Under the New Tax Regime

Employees opting for the new tax regime will benefit from a higher standard deduction of ₹75,000, an increase from the previous ₹50,000. Employers must update payroll systems to reflect this enhanced deduction, ensuring its proper application.

4. Submission of Form 12BAA

To optimize TDS calculations, employees must submit Form 12BAA to their employers. This form allows employees to declare additional deductions or exemptions under the new tax regime. Enabling employers to calculate TDS accurately in accordance with Notification No. 112/2024-Income Tax, issued on October 15, 2024.

5. Updated Compliance Tools

Protean (formerly NSDL e-Governance) has released updated compliance tools to support these changes:

• Return Preparation Utility (RPU) v5.4
• File Validation Utility (FVU) v8.9

Operational since December 2024, these tools ensure accurate TDS filings and incorporate the revised provisions of Form 24Q. Employers can download the updated RPU from the official Protean website.

6. Updated TDS Certificates

Starting Q4 of FY 2024-25, TDS certificates issued to employees will reflect the revised TDS calculation framework. These certificates will provide an accurate record of tax deductions, essential for employees when filing their income tax returns.

Impact of the Changes – New TDS/TCS Rules

For Employees

• Improved Cash Flow: By reducing over-deduction, employees will enjoy higher take-home pay.
• Fairer Taxation: Adjustments for TDS on non-salary income ensure a more equitable tax system.
• Accurate Tax Records: Updated TDS certificates enhance transparency and simplify tax filing.

For Employers

• System Updates: Employers must update payroll systems to implement the new rules and standard deduction changes.
• Compliance Tools: Accurate filings require the adoption of Protean’s updated RPU and FVU tools.
• Coordination with Employees: Employers should ensure employees submit Form 12BAA to benefit from lower TDS deductions under the new tax regime.

Conclusion

The government’s initiative to integrate TDS/TCS on non-salary income into salary TDS calculations marks a significant step toward a fairer and more efficient taxation system. These changes not only reduce financial strain on employees but also streamline compliance for employers. With the enhanced standard deduction, updated reporting mechanisms, and advanced compliance tools, stakeholders are better equipped to navigate the evolving tax landscape. As these updates take effect, both employees and employers can look forward to a more transparent and equitable approach to tax deduction and reporting.

Get updated about the new TDS/TCS rules that are going to be effective from January 2025 with Pitchers Global and make yourself compliant with taxation.

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