New Changes in TDS Form 24Q for Salaried Employees

Starting October 1, 2024, a significant change has been introduced in the way employers calculate Tax Deducted at Source (TDS) on employee salaries. Employers are now required by law to factor in TDS/TCS already deducted on an employee’s non-salary income when computing TDS on their salary income. This update aims to prevent excess tax deduction, reduce double taxation, and increase tax compliance efficiency.

Why the Change in TDS Calculation was Necessary

Before this change, TDS deducted from non-salary income—such as freelance earnings, interest, or rent—was not taken into account when calculating salary TDS. This often led to:

• Double taxation on the same income causes undue financial strain on employees.

• Higher than necessary TDS deductions result in reduced take-home salary.

• Administrative difficulties for both employers and tax authorities.

This amendment addresses these issues by allowing employers to adjust salary TDS based on tax already deducted from other income sources.

Implementation Timeline and Software Upgrades

Implementing this change required significant backend upgrades. The key milestones include:

• December 27, 2024: NSDL e-Governance updated its TDS software systems.

• Employers are now equipped to issue accurate TDS certificates reflecting these adjustments starting from the fourth quarter of FY 2024–25.

• Updated utilities, including File Validation Utility (FVU) version 8.9 and Return Preparation Utility (RPU) version 5.4, were released in December 2024 to support the new TDS return format.

These upgrades enable smooth compliance and accurate tax reporting by employers.

Key Changes in TDS Return Form 24Q

Inclusion of Non-Salary TDS/TCS in Salary TDS Calculations

Employers must now consider TDS or Tax Collected at Source (TCS) already deducted on non-salary income while calculating TDS on salaries. This adjustment prevents employees from paying tax twice on the same income.

Example:
If an employee earns freelance income with TDS already deducted, the employer will reduce the salary TDS accordingly to avoid excess tax deduction.

New Reporting Columns for Better Transparency

To facilitate proper reporting, Form 24Q has been updated:

• A new column under Section 192(2B) allows reporting of TDS/TCS deducted by other deductors.

• Existing columns are renamed and renumbered for clarity, reflecting tax deducted from income by multiple employers.

These improvements simplify compliance for employers and ensure transparency for tax authorities.

Impact on Standard Deduction and Payroll Systems

Under the new tax regime, employees are entitled to a higher standard deduction of ₹75,000, up from ₹50,000.

Employers must:

• Update payroll systems to apply this increased deduction.

• Accurately reflect the revised standard deduction in TDS calculations.

To claim benefits under the new regime, employees should submit Form 12BAA to their employers. This form helps employers correctly apply TDS deductions as per Notification No. 112/2024 dated October 15, 2024.

Benefits of the Revised TDS Framework

For Employees

• Reduced over-deduction of tax, leading to higher take-home pay.

• Accurate reflection of total taxable income by incorporating all income sources.

• Simplified tax compliance and fewer corrections during tax filing.

For Employers

• Compliance with the latest tax regulations.

• Streamlined TDS reporting with enhanced Form 24Q.

• Ability to generate precise TDS certificates essential for employee income tax returns.

Actionable Steps for Employers and Employees

Employers Should:

• Upgrade payroll and TDS processing software immediately.

• Use the updated FVU and RPU tools to file returns correctly.

• Collect Form 12BAA from employees opting for the new tax regime to ensure accurate TDS deduction.

Employees Should:

• Disclose all non-salary income and corresponding TDS deductions to employers.

• Submit Form 12BAA promptly to avoid excess TDS deductions.

• Verify their TDS certificates for accuracy when filing income tax returns.

Conclusion: Enhancing Tax Accuracy and Employee Financial Well-being

The revised TDS rules, effective from January 2025, mark a crucial step toward improving the accuracy and fairness of tax deductions on salaries. By factoring in TDS/TCS from non-salary income, the government aims to:

• Minimize tax overpayments.

• Enhance employees’ take-home salary.

• Simplify tax compliance for both employers and employees.

For successful implementation, employers must upgrade their systems and ensure employees submit the required documents. Meanwhile, employees should stay informed and proactive in declaring their income and tax deductions. Together, these efforts will lead to smoother tax processes, better compliance, and improved financial outcomes for salaried individuals.