For the assessment year (AY) 2024-25, salaried employees in India must face a range of income tax provisions that influence their earnings and tax liabilities. The Indian government continues to refine tax policies to simplify the process and offer various options for taxpayers. This comprehensive guide provides an in-depth look at the income tax provisions for salaried employees for AY 2024-25 FY 2023-24, covering income components, tax regime options, key considerations, and the process of filing income tax returns.
Income on Salary
Income from salary includes various components, each affecting the taxable income differently:
- Basic Salary: This is the core component of an employee’s salary and forms the basis for other allowances and benefits. It is fully taxable.
- Allowances: These are additional payments made to employees to cover specific expenses. Common allowances include:
- House Rent Allowance (HRA): Provided to employees living in rented accommodation. The exemption is calculated as the least of the following:
- Actual HRA received
- 50% of salary (for metro cities) or 40% (for non-metro cities)
- Rent paid minus 10% of salary
- Leave Travel Allowance (LTA): Covers travel expenses incurred during leave. This is exempt under specific conditions, usually for domestic travel and subject to certain limits.
- Transport Allowance: Previously provided to cover travel expenses between home and work, but now largely subsumed under the standard deduction.
- House Rent Allowance (HRA): Provided to employees living in rented accommodation. The exemption is calculated as the least of the following:
- Perquisites: Non-cash benefits provided by the employer, such as:
- Company Car: Use of a company-provided vehicle for personal purposes.
- Accommodation: Rent-free or concessional accommodation provided by the employer.
- Stock Options: Employee stock options plans (ESOPs) allowing employees to purchase company shares at a discounted rate.
- Bonuses and Incentives: These include performance-based bonuses, annual incentives, and other additional payments. They are fully taxable.
- Retirement Benefits: Contributions made by the employer towards retirement funds, such as:
- Provident Fund: Employer contributions to the Employees’ Provident Fund (EPF) are tax-free up to 12% of the employee’s salary.
- Gratuity: Tax-free up to ₹20 lakh for private-sector employees.
- Pension: Monthly pension payments are taxable as salary.
Tax Regime Options
For AY 2024-25, taxpayers can choose between the old tax regime and the new tax regime introduced in the 2020 budget. Each regime has distinct features and benefits.
Old Tax Regime
The old tax regime allows for numerous exemptions and deductions, providing opportunities to reduce taxable income. Key provisions include:
- Standard Deduction: A flat deduction of ₹50,000 for all salaried employees.
- HRA Exemption: As discussed earlier, HRA can be partially exempt based on specific criteria.
- LTA Exemption: Provided for travel expenses incurred during leave, subject to conditions.
- Section 80C Deductions: Up to ₹1.5 lakh can be claimed for investments in specified financial instruments like EPF, PPF, National Savings Certificates (NSCs), life insurance premiums, and principal repayment of home loans.
- Section 80D Deductions: Premiums paid for health insurance policies can be deducted up to ₹25,000 for self and family, and an additional ₹25,000 for parents (₹50,000 if parents are senior citizens).
- Other Deductions: Available under sections like 80E (interest on education loans), 80G (donations to specified funds and charitable institutions), and 80TTA (interest on savings accounts up to ₹10,000).
The tax slabs under the old regime for AY 2024-25 are:
- Income up to ₹2.5 lakh: Nil
- ₹2.5 lakh to ₹5 lakh: 5%
- ₹5 lakh to ₹10 lakh: 20%
- Above ₹10 lakh: 30%
New Tax Regime
The new tax regime offers lower tax rates with fewer exemptions and deductions, aiming to simplify the tax filing process. The tax slabs under the new regime for AY 2024-25 are:
- Income up to ₹3 lakh: Nil
- ₹3 lakh to ₹6 lakh: 5%
- ₹6 lakh to ₹9 lakh: 10%
- ₹9 lakh to ₹12 lakh: 15%
- ₹12 lakh to ₹15 lakh: 20%
- Above ₹15 lakh: 30%
Under the new regime, common exemptions and deductions available in the old regime are not applicable, except for employer contributions to the National Pension System (NPS) under Section 80CCD(2).
Key Points to Consider
Salaried employees need to carefully evaluate which tax regime to opt for based on their individual financial situations. Here are some key considerations:
- Comparison of Tax Regimes: Employees should compare the total tax liability under both regimes. Those with significant investments in tax-saving instruments and eligible for various deductions may benefit more from the old regime. Conversely, those preferring a simpler and straightforward tax calculation may opt for the new regime.
- Form 16: This document, provided by the employer, summarizes the salary paid and taxes deducted at source (TDS). It is crucial for filing income tax returns and contains details of allowances, perquisites, and deductions claimed.
- Advance Tax: Salaried employees with additional income from sources such as investments, rental property, or business should pay advance tax if their total tax liability exceeds ₹10,000. Failure to pay advance tax can result in interest and penalties.
- Tax Rebate under Section 87A: Individuals with a total income of up to ₹5 lakh can avail of a rebate of up to ₹12,500 under Section 87A, effectively making their tax liability zero.
- Filing Returns: It is mandatory for individuals whose gross total income exceeds the basic exemption limit to file income tax returns. The due date for filing returns for AY 2024-25 is typically July 31, 2024.
Filing Income Tax Returns
Filing income tax returns is a critical annual task for salaried employees. Here is a step-by-step guide to ensure compliance:
- Collect Necessary Documents: Gather essential documents, including Form 16, salary slips, investment proofs, rent receipts, and interest certificates from banks.
- Choose the Appropriate ITR Form: Salaried employees typically use ITR-1 (Sahaj) if their total income does not exceed ₹50 lakh, and they do not have income from more than one house property, agricultural income exceeding ₹5,000, or income from lottery winnings or racehorses.
- Verify Form 16 Details: Cross-check the details in Form 16 with your salary slips and other financial documents to ensure accuracy.
- Calculate Total Income: Calculate total income by adding all income sources, including salary, house property, capital gains, and other sources.
- Claim Deductions: Claim eligible deductions under sections 80C, 80D, and others based on the investments made and expenses incurred.
- Compute Tax Liability: Calculate the tax liability based on the applicable tax slab rates under the chosen regime.
- Pay Any Outstanding Tax: If the calculated tax liability exceeds the TDS already deducted, pay the balance using the e-payment facility on the Income Tax Department’s website.
- File the Return Online: Log in to the Income Tax e-filing portal, fill in the necessary details, upload the required documents, and submit the return. Ensure to verify the return using Aadhaar OTP, net banking, or by sending a signed ITR-V to the CPC, Bengaluru.
- Keep Acknowledgment: After filing, keep a copy of the acknowledgment for future reference and compliance.
Conclusion
Understanding the income tax provisions for salaried employees for AY 2024-25 is essential for efficient tax planning and compliance. By comprehensively evaluating income components, comparing tax regimes, and following a systematic approach to filing returns, employees can optimize their tax liabilities and ensure compliance with the tax laws. Staying informed about changes in tax policies and leveraging available exemptions and deductions can significantly impact financial planning and tax obligations.
