In a major relief for salaried individuals, the maximum exemption for leave encashment at the time of retirement for non-government employees has been raised to ₹25,00,000. This update is part of a circular issued by the Central Board of Direct Taxes (CBDT), which provides comprehensive guidance on income tax deduction from salaries under the Income-tax Act, 1961 for the financial year 2024-25. The circular serves as a reference for employers regarding TDS deductions from salaries and consolidates changes introduced in the budgets of 2023 and 2024.
The circular also clarifies that the Agniveer Corpus Fund under the Agnipath Scheme will be categorised as salary, while perquisites will now cover rent-free/concessional accommodation provided by employers. The circular further states that for FY25, individuals with total income up to ₹7,00,000 (under the new regime) will have zero tax liability. The threshold, which will be effective from the new financial year, has been increased to ₹12 lakh.
Amit Maheshwari, Tax Partner, AKM Global, stated: “The CBDT has issued a routine circular regarding TDS deduction on salaries under Section 192 of the Income-tax Act, 1961, effective for FY 2024-25. This consolidates changes made over the last two years, covering aspects such as tax slab rates, deduction thresholds, and leave encashment exemptions. This circular will serve as a useful reference for employers and help salaried taxpayers understand their tax obligations.”
The circular also highlights the updated Form 16, which, according to Rajat Mohan, Senior Partner, AMRG & Associates, improves reporting transparency and accountability.
The CBDT had previously issued a similar circular on December 7, 2022, guiding employers on computing TDS on salaries for FY 2022-23 in line with amendments from the Finance Act, 2021. The new circular supersedes the 2022 circular by incorporating the amendments introduced in the Finance Act, 2023, and Finance Act, 2024, ensuring a streamlined approach for TDS computation for FY 2024-25.