These new TDS rules will change how you view your salary forever!

Introduction to TDS on Salary

When you get a salary, your employer takes out TDS (Tax Deducted at Source) under Section 192 of the Income Tax Act.

They deduct this based on your choice or select the option of tax regime – Old Regime or New Regime. If you don’t have any choice or select one then, the employer go with the new regime by default.

Understanding TDS System Under Section 192

The Rule of Income Tax Act under Section 192, TDS deducted on all the monetary amounts paid by the employer under the head ‘Salary’. Since, ‘Salary’ also includes pension. In that case, employers are also liable to deduct TDS from your salary time to time if you have tax liability raised on your earned salary. Employers are use the tax slab and calculate that fits your total income, including your salary and other earnings.

Also Read: Income Tax Analysis on Budget: Powerful Guidelines & Tips for FY 2024-25

Key Changes in TDS Deduction

Consideration of TCS for TDS Calculation

In Budget 2024, a big change is coming. Employers will now include TCS in TDS calculations. This is for things like foreign money transfers or buying expensive items like cars. For example, if you buy a car more than ₹10 lakhs and pay TCS, this will reduce your tax liability.

Changes in New Tax Regime Slabs and Standard Deductions (Section 16(ia)

The budget has changed the tax slabs for the new regime. Here are the new rates:

• Up to ₹3 lakhs: 0% tax
• ₹3 to ₹7 lakhs: 5% tax
• ₹7 to ₹10 lakhs: 10% tax
• ₹10 to ₹12 lakhs: 15% tax
• ₹12 to ₹15 lakhs: 20% tax
• Above ₹15 lakhs: 30% tax

The standard deduction (Section 16(ia) has also increased from ₹50,000 to ₹75,000.

Example to Illustrate the Change

Case Study: Mr. Rakesh

Let’s look at Mr. Rakesh, his annual salary income ₹12 lakhs. Before Budget, the employer would just use the info Rakesh gave them for TDS. But now, if Rakesh bought a car worth ₹20 lakhs and paid TCS of ₹20,000, the employer will subtract this from the TDS. This means Rakesh will pay less tax each month.

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Comparison of Old Tax and New Tax Regimes

The old tax regime hasn’t changed, but the new regime offers more benefits.

For example, Rakesh might pay less tax with the new regime because increase of the standard deduction from ₹50 thousand to ₹75 thousand and better tax rates.

Impact on Family Pension and Other Deductions

In this Budget Family Pensioner’s also benefited due to exemption limit section 57 has also increase from ₹15,000 to ₹25,000. Furthermore,  for High earner can also benefit from this budget due to increase of employer contributions to pension funds (Section 80CCD(2)) have increased from 10% to 14%.

Enhanced Compliance and Record-Keeping

Income tax Authority enhance to compliance to both employers and employees must maintain proper records of TCS transactions. Employers need to update their payroll systems to include TCS data. Employees should keep all TCS-related documents to make reporting easier.

Understanding TCS (Tax Collected at Source)

The seller deduct TCS (Tax Collected at Source) or collect the Tax from the buyer at the time of sale of specified goods or provision of specified services. The seller deposits TCS amount as tax with the government on behalf of the buyer.

For salaried individuals, TCS can come into play in transactions such as foreign remittances, purchases of motor vehicles above a certain value, and other high-value transactions.

How TCS Affects TDS Calculations

Under the new tax regulations, if an employee has TCS collected on any transaction like foreign remittances, purchases of motor vehicles, and other high-value transactions then it must be reported to the employer. Then the employer will add this TCS in the employee’s tax computation for the year. In this context, ensures that the TCS paid is immediately effect against the employee’s overall tax liability, which is reducing the tax, need for refunds and simplifying the tax compliance process.

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Employees Reporting Requirements to Employer

Employees must report to their employer for any TCS collected on their above mentioned transactions. If you fail to report then result in inaccurate TDS deductions and potential discrepancies in their tax filings. Employees must be maintain proper records of any transactions which is involve TCS and ensure they are communicated to their payroll department.

Example of TDS Calculation Including TCS

Case Study: Ms. Arpita

Ms. Arpita’s annual salary of ₹15 lakh. She makes a foreign remittance of ₹6 lakh, which attracts a TCS of 5% (₹30,000) and, Arpita reported to their employer. In that case, under the new tax rules, the employer will factor in this TCS while calculating her TDS. Now, the employer calculates Tax on an entire salary of ₹15 lakh, then the employer first subtract the TCS amount on overall tax liability and then calculates TDS, how much  TDS deducted from the employee. So, the TCS amount is already deducted from overall tax liability resulting in lower monthly TDS deductions.

Additional Benefits and Considerations

The combination of TCS into TDS calculations provides a more smooth and efficient tax deduction process. It reduces the administrative burden on taxpayers who previously had to claim refunds for TCS paid. This change also encourages to both employers and employees for clarity and proper tax reporting, as all taxes collected and deducted are accounted for time to time.

Challenges and Smooth Solutions for both employers and employees

Budget 2024, while the new TDS rules offer many benefits. It is also present some challenges, particularly when its implementation and compliance.

Employers may need to invest in upgrading their payroll systems and training to their staff to handle the new procedures.

Employees must be reporting their TCS transactions and make a proper knowledge how these affect their overall tax liability.

To overcome these challenges, both employers and employees can seek guidance from tax professionals and utilize digital tools and platforms that make an accurate tax calculations and reporting. Regular updates from the tax authorities and educational resources can also help in the smooth transition to the new system.

Conclusion

In Conclusion the changes in TDS (Tax Deducted at Source) rule on salary as per Budget 2024, it is a significant step to more efficient and transparent in tax system. Including TCS in TDS calculations, the government ask to simplify the tax compliance and provide immediate tax relief to taxpayers. Both employers and employees need to stay informed about these changes, maintain accurate records, and ensure time to time reporting of TCS (Tax Collection at Source) transactions.

As the financial view, both employers and employees need to stay updated with the latest tax regulations and advantage technology. Understanding the systems for compliance can help individuals and businesses handle the complexities of the tax system effectively. Always Keep an eye on further updates and guidelines from the tax authorities to ensure smooth attachment to the new rules and take maximize their benefits.

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Unique FAQs

Q1. What is the major change in TDS calculation introduced in Budget 2024?

A1. The major change is the inclusion of TCS (Tax Collected at Source) in TDS calculations. Now, any TCS collected on transactions must be considered when computing TDS on salaries.

Q2. How does the new tax regime differ from the old one?

A2. Understanding the New TDS Rules after Budget 2024

In the new tax regime has changed in tax slabs and increased the standard deduction to ₹75,000. In the old Tax system ₹50,000, and there is no changes. It also makes the tax structure simpler.

Q3. What should employees do if they have TCS collected on a transaction?

A3. Employees must tell their employer about any TCS collected on their transactions. This helps with accurate TDS deductions and following the new rules.

Q4. How does the inclusion of TCS in TDS calculations benefit employees?

A4. It gives immediate tax relief by lowering the overall tax liability. This means less TDS deducted each month and a simpler tax process.

Q5. What challenges faced by the employers with the new TDS rules, and how can they overcome?

A5. Employers always need to update their payroll systems and depot a train staff. They can overcome these challenges by getting advice from tax experts. Using digital tools for payroll and tax calculations is also a good idea to smoothly overcome these challenges.