Country: India
State: Not applicable
Compliance category: Income Tax
Regulatory Information:
Regulation: Finance (No.2) Act 2024 and Finance Act 2023
Act/Notification/Circular No: Circular No.3/2025
Notification date: February 20, 2025
Source: https://incometaxindia.gov.in/communications/circular/circular-no-03-2025.pdf
Updates in Compliance:
Summary:
The Central Board of Direct Taxes (CBDT), through Circular No. 3/2025, outlines the amendments introduced during the Financial Year(FY) 2024-25 and FY 2023-24 under the Finance(No.2) Act 2024 and Finance Act 2023 concerning income tax deduction from salary in accordance with Section 192 of the Income Tax Act, 1961 (‘the Act’).
This circular is to be read in conjunction with the existing Circular No. 24/2022, which was issued for the Financial Year 2022-23. The earlier circular remains applicable for provisions that were not impacted by the Finance(No.2) Act 2024 and Finance Act 2023 amendments. The key amendments summarized in Circular No. 3/2025 are as follows:
Effective Date: Date as applicable
1. Inclusion in Section 17(1) and Section 17(2):
| Act | Section | Change description | Change |
| Finance Act 2023 | Section 17(1) of the Act | Inclusion as salary | Contribution made by the Central Government in the previous year to Agniveer Corpus Fund account of an individual enrolled in Agnipath scheme* Effective date: April 01,2023 |
| Finance Act 2023 | Section 17(2) of the Act | Inclusion as Perquisite | Rent free accommodation (RFA) provided to employees by the employer (computed in prescribed manner) and any accommodation provided to employees by employer at concessional rate** Effective date: April 01,2024 |
* Inclusion of Section 10(12C) of the Act in Finance Act 2023 to exempt any amount received by the assessee or nominee from Agniveer Corpus Fund and Section 80CCH to claim deduction of the total amount deposited in this fund for that respective year from Total Income.
** The amendment vide Income Tax (Eighteenth Amendment) Rules,2023 effective September 01,2023 provides for valuation rates and mechanism of RFA and any other accommodation.
2. Change in Surcharge (Old tax regime):
The Finance (No.2) Act 2024 amends the Surcharge rates applicable to individuals (under Old Tax Regime) April 01,2024 as under effective:
| S.No | Taxable Income (in Rs.) | Surcharge Rate |
| 1 | >50 lakhs but ≤ 1crore (including the income by way of dividend or income under sections 111A or 112 or 112 A) | 10% |
| 2 | >1crore but ≤ 2crores (including the income by way of dividend or income under sections 111A or 112 or 112 A) | 15% |
| 3 | >2crore but ≤ 5crores (including the income by way of dividend or income under sections 111A or 112 or 112 A) | 25% |
| 4 | >5crores (including the income by way of dividend or income under sections 111A or 112 or 112 A) | 37%* |
| 5 | >2crores (including the income by way of dividend or income under sections 111A or 112 or 112 A) but not covered in line item 3 and 4 above | 15% |
*The surcharge rate for Taxable Income more than 5 crores has been revised from 35% to 37% while the other slab rates remain the same.
3. Change in Section 115 BAC(1A):
The Finance (No.2) Act 2024 amends the income tax rates as per Sub Section(1A) of 115 BAC of the Act applicable to individuals (under New Tax Regime) effective April 01,2024 as under:
| S.No. | Taxable Income (in Rs.) | Tax Rate |
| 1 | Up to 3,00,000 | Nil |
| 2 | From 3,00,001 to 7,00,000 | 5% |
| 3 | From 7,00,001 to 10,00,000 | 10% |
| 4 | From 10,00,001 to 12,00,000 | 15% |
| 5 | From 12,00,001 to 15,00,000 | 20% |
| 6 | Above 15,00,000 | 30% |
In addition, the component consideration in Total Income for a person as per Section 115BAC without certain exemptions, deductions and set off loss stipulated in clause (i) and (ii) under Sub section (1A) of 115BAC has been elaborately provided for in the above stated circular including clause (iii) and (iv) under Sub section (1A) of 115BAC.
4. TDS compliance for salaried individuals (Section 192(2B)):
In Finance Act (No.2) 2024, Sub-section (2B) of Section 192 of the Act allows salaried individuals to declare the details pertaining to TDS on Non-employment income effective October 01,2024.
5. Changes in Forms:
The CBDT vide Notification No. 112/2024 /F. No. 370142/19/2024-TPL has introduced Form 12 BAA and amended Form 16 and 24Q for the purpose of declaring tax deducted at source on Income other than salary effective October 15,2024. Refer to Declaration of Tax deducted or collected at source under Section 192(2B) for details.
6. Changes in Income Tax (Eighteenth Amendment) Rules, 2023 (‘the Rules’):
- Remote area definition in Explanation (V) to Rule 3 has been amended effective September 01,2023.
- The value of free food and non-alcoholic beverages as per first proviso clause (iii) of sub-rule (7) of Rule 3 effective June 21,2023 can be considered as expenditure incurred by employer for employees.
- The value of free food and non-alcoholic beverages provided through paid vouchers, as specified under the second proviso of clause (iii) of sub-rule (7) of Rule 3, shall not be considered an expenditure if incurred on behalf of employees opting for the new tax regime.
7. Change in Leave encashment exemption limit:
The CBDT vide Notification No.31/2023 increases the maximum exemption limit from Rs.3,00,000 to Rs.25,00,000 in case of non-government employees effective April 01,2023.
8. Relief under Section 87 A:
The Finance Act 2023, under Sub Section 1(A) of Section 115BAC of the Act, outlines the relief provided under Section 87A of the Income Tax Act, effective from April 1, 2024, as detailed below:
| S.No | Total Income (in Rs.) | Tax Relief (in Rs.) |
| 1 | Up to 7,00,000 | 100% of Income tax or 25,000(whichever is less) |
| 2 | >7,00,000 | Income tax on the amount exceeding 7,00,000 |
Our Analysis:
In accordance with the recent amendments introduced under the Finance (No. 2) Act 2024 and the Finance Act 2023, these revised guidelines for income tax deduction from salary under Section 192 have been issued. The updated provisions are to be applied in conjunction with the existing regulations, ensuring full compliance with the latest tax laws.
The issuance of this circular has streamlined the reference process for readers and analysts by consolidating and clarifying the amended tax provisions separately, thereby minimizing the need for frequent consultations of the Act.
