Payroll and Income Tax Guide

Financial Year 2024-2025

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Disclaimer:

These are the general information basis the commonly sought responses and do not amount to advice
on any specific matter.

You are advised to seek relevant provisions of the appropriate Statutes and Acts, along with the Rules,
Circular and Notifications issued from time to time, before acting based on any information contained
herein.

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of any kind whatsoever with respect to the service or material available through ESS portal.

This website is designed for general information only. The information presented at this site should
not be construed to be either formal advice or the formation of an advisor/client relationship.

Further, this information must also be read along with your company specific HR/Compensation
policy for clear understanding

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What does Salary Income mean?

Salary normally includes wages, annuity, pension, gratuity, commission, perquisites, etc. and
any other payment received by an employee from the employer during the year. These are
paid and tax is deducted at source by your current employer. An annual statement of earnings
and deductions (Form 16) is given to each employee at the end of each financial year (April -
March).

What does Allowances mean?

Allowances are fixed sums of money paid regularly in addition to salary for the purpose of
meeting some requirement. There are 3 types of allowances:

• Taxable allowances
• Partially exempted allowances
• Fully exempted allowances

Most allowances are fully taxable while some are partially taxable like House Rent Allowance,
Children Education Allowance. A table with details of taxability is enclosed as under:

Fully Taxable Allowances Partially Exempted Allowances

• Dearness Allowance • House Rent Allowance
• Medical Allowance • Children Hostel Allowance
• Servant Allowance • Children Education Allowance
• Deputation Allowance • Leave Travel Allowance
• Over Time Allowance
• Other Allowances

What is a Permanent Account Number (PAN)?

Permanent Account Number is a unique identification number by which the Assessing

Officer of the Income Tax Department can identify any assessee. PAN consists of ten
alphanumeric characters, and every employee of the company must possess PAN.

It is mandatory to submit the PAN to the employer, failure to which the income tax will be
deducted at the rate of 20% of the taxable income or the average tax whichever is higher, as
per Sec 206AA of the Income Tax.

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What are the current Income Tax slabs?

Income Tax slab for resident Individual who is less than 60 years of age
Taxable Income Slab Income Tax Rate & Cess
Up to Rs. 2.5 Lakh Nil
Rs. 2,50,001 to Rs. 5,00,000 5% of (Total Income minus Rs. 2,50,000)
Rs. 5,00,001 to Rs. 10,00,000 Rs. 12,500 + 20% of (Total Income minus Rs. 5,00,000)
Rs. 10,00,001 and above Rs. 1,12,500 + 30% of (Total Income minus Rs. 10,00,000)

Income Tax slab for resident Individual who is equal to or greater than 60 and less than
80 years of age (Senior Citizen)
Taxable Income Slab Income Tax Rate & Cess
Up to Rs. 3 Lakh Nil
Rs. 3,00,001 to Rs. 5,00,000 5% of (Total Income minus Rs. 3,00,000)
Rs. 5,00,001 to Rs. 10,00,000 Rs. 10,000 + 20% of (Total Income minus Rs. 5,00,000)
Rs. 10,00,001 and above Rs. 1,10,000 + 30% of (Total Income minus Rs. 10,00,000)

Income Tax slab for resident Individual who is equal to or greater than 80 years of age
(Super Senior Citizen)
Taxable Income Slab Income Tax Rate & Cess
Up to Rs. 5 Lakh Nil
Rs. 5,00,001 to Rs. 10,00,000 20% of (Total Income minus Rs. 5,00,000)
Rs. 10,00,001 and above Rs. 1,00,000 + 30% of (Total Income minus Rs. 10,00,000)

Surcharge:
Taxable Income Range Surcharge % Marginal Rates
50 Lakhs to 1 Crore 10% 34.32
1 Crore to 2 Crores 15% 35.88
2 Crores to 5 Crores 25% 39
5 Crores and above 37% 42.74

• Note: The amount of Income Tax and Surcharge shall not increase the amount of income
tax payable on the respective taxable income by more than the amount of increase in
taxable income.
• Sec 87A relief up to Rs. 12,500 will be available to a resident individual whose total
taxable income does not exceed Rs. 5,00,000.
• Section 87A rebate is applicable for only the taxpayer who is resident in India.

• Section 87A rebate is not applicable for PAN not available cases.

Health & Education Cess: 4% of the total of Income Tax and Surcharge.

Tax Calculation of PAN Not Available cases:

If the employee's PAN is not available and his total taxable income is less than the taxable

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limit (INR 250,000) within the tax year, then there is no tax withholding required.
For example: The taxable income for the year is INR 2,00,000. As it is less than the taxable
limit of INR 2,50,000, there is no withholding tax due for the employee on the employment
income of INR 2,00,000.

If the employee's total taxable income is INR 3,00,000 which is exceeding INR 2,50,000 (old
regime), then the withholding u/s 206AA will be applicable - i.e., the higher of the graduated
tax rates (old or new regime) or a flat rate of 20%, which would be at flat rate of 20% @ INR
300,000 = INR 60,000.

Where the employee's taxable income exceeds the taxable limit (e.g. INR 250,001 or INR
300,001) in old or new regime respectively, the withholding tax for the employee without
PAN will be calculated in accordance to Section 206AA of Income Tax Act 1961, regardless
of the employee's taxable income, i.e. the taxes will be withheld at the higher of the following
rates:

• at the rate specified in the relevant provision of this Act; or

• at the rate or rates in force; or
• at the rate of twenty per cent

Applicability of Surcharge and Cess - If the withholding tax is calculated at a flat rate of 20%,
then Surcharge and Cess is not applicable. Otherwise, the Surcharge and Cess will be
included in the withholding tax calculation.

Section 87A Rebate is not applicable, as this would only apply if the employee is assessed
based on the graduated rates and the total income is less than INR 500,000. However, for
such cases, the flat rate of 20% would result in a higher withholding tax.

What is Form 16?

Form 16 is a certificate issued by the employer every year to its employees under section 203
of Income Tax Act for Tax Deducted at Source from the Income chargeable under “Salaries”.

How do I Account for my Salary from More Than One Employer?

The employee is required to furnish details of the income, under "Salaries" due or received
from the former/other employer to the present/current employer, and also tax deducted at
source, in writing and duly verified by him and by the former/other employer in Form 12B
(copy of this Form is available on ESS portal). The present/current employer will deduct tax at
source based on the aggregate amount of salary (including salary received from the former or
other employer), though it does not reflect on the Form 16 of the current employer.

How do I calculate my House Rent Allowance (HRA) and exemption thereon?

From the House Rent Allowance (HRA) received as part of salary during the year, least of the
following three amounts are exempt from tax (or not included in income):

• Amount equal to 50% of annual salary for persons staying in metros (Mumbai,
Chennai, Calcutta, or Delhi) and 40%, for other cities

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 • Actual amount of HRA received
• Amount of rent actually paid in excess of 10% of annual salary

For HRA exemption purpose, Salary is defined as basic salary, dearness allowance, and
commission on fixed percentage, but not other allowances.

Example:

1. Salary for the entire year Rs. 300,000/- (Basic + Dearness Allowance)
2. Actual HRA received Rs. 72,000/-
3. Rent paid for the entire year Rs. 60,000/- (5000 pm * 12 months)

HRA exemption for this case is:

a) Actual HRA received = Rs. 72,000
b) Rent paid less 10% of Salary = Rs. 30,000 (60,000 minus 30,000 (10% of 300,000)
c) 40% of Salary (300,000) = Rs. 120,000

Least of the above, Rs. 30,000, is exempt from tax

How is the exemption on Leave Travel allowance calculated?

(Refer to your HR policy also along with this note. Enclosed is a best practice
interpretation)

Allowance to meet the cost of travel incurred by employee:

• Leave Travel Expenses exempt for 2 domestic journeys in a block of 4 calendar

years (Current block is 2022 - 2025)
• One un-availed journey for previous block can be availed in the 1st year of the
next block
• Assessee should be part of the travel throughout
• Boarding and lodging are not exempt
• Leave should be availed during the period of travel
• Only fare cost is exempt, which is restricted to:

Particulars Exempt Amount

Journey performed by air Economy fare by the shortest route or
actual amount spent, whichever is the
least.
Journey performed by rail Air-conditioned first-class rail fare by the
shortest route or actual amount spent,
whichever is least.
Journey performed by any other mode but Air-conditioned first-class rail fare by the
the origin and destination are covered by shortest route or actual amount spent,
Rail whichever is least.

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Where the origin and destination • First class or deluxe class fare by
are not connected by rail, and shortest route or amount actually
• Where an organized public transport spent, whichever is least.
exists • Air-conditioned first-class rail fare
• Where no organized public by shortest route or actual amount
transport exists spent, whichever is least.

Example:

1. LTA received for the entire year = Rs. 40,000

2. Air tickets for the travel undertaken = Rs. 35,000

Rs. 35,000 is exempt from Income Tax.

Leave Travel Concession Cash Voucher Scheme:

To provide tax exemption to cash allowance in lieu of leave travel concession due to
pandemic, for Financial Year beginning on April 1, 2020, the value in lieu of any travel
concession or assistance received by an individual was also to be exempt by fulfilment of
conditions as prescribed.

The conditions listed out by the CBDT for availing the tax exemption under the LTC cash
voucher scheme required the employee to spend a sum equal to three times of the value of the
deemed LTC fare on purchase of goods / services which carry a GST rate of 12 per cent or
more from GST registered vendors / service providers through digital mode between October
12, 2020 to March 31, 2021 and to obtain a voucher indicating the GST number and the
amount of GST paid.
However, this amendment is applicable to Financial Year 2020-2021 only.

Children Education Allowance

Rs.100 per month per child up to a maximum of two children, if provided as part of your
compensation structure

What is Perquisite and how is it taxed?

Perquisites are emoluments or benefits received from an employer, in addition to salary,

bonus, allowances, gratuity, etc. They include rent-free accommodation, free electricity, gas,
or water supply, free domestic servant, etc. provided / paid for, by the employer. These
perquisites are added to the Salary Income for arriving at the tax liability as per the applicable
slabs. Examples of perquisites are:

1. Rent Free (commonly called Company Lease/Owned) Accommodation:

The Finance Act, 2023 brought in an amendment for the purposes of calculation of
“perquisite” about the value of rent-free or concessional accommodation provided to an
employee, by his employer. Accordingly, CBDT has modified Rule 3 of the Income-tax
Rules, 1961 to provide for the same.

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The categorization and the limits of cities and population have now been based on the 2011
census as against the 2001 census earlier. The revised limits of population are 40 lakhs in
place of 25 lakhs and 15 lakhs in place of 10 lakhs. The earlier perquisite rates of 15%, 10%
and 7.5% of the salary have now been reduced to 10%, 7.5% and 5% of the salary
respectively in the amended Rule. This is summarized as under:

1. The employer owns the accommodation. The value of the accommodation is determined
at the specified rate (refer to the following table) for the period in which the
accommodation was occupied by the employee during the financial year.
Previous Categorization and Rates (up to New Categorization and Rates (from
31.08.2023) 01.09.2023 onwards)
Perquisite
Population Perquisite Rate Population Rate
More than 25 lakhs 15% More than 40 lakhs 10%
Between 10 lakhs and 25 Between 15 lakhs and 40
lakhs 10% lakhs 7.5%
Less than 10 lakhs 7.5% Less than 15 lakhs 5%

2. When accommodation provided is taken on lease/ rent by the employer, 15% of the
salary or the actual amount of lease rent payable by the employer, whichever is less, will
be considered up to 31.08.2023. However, 10% of the salary or the actual amount of lease
rent payable by the employer, whichever is less, will be considered from 01.09.2023
onwards. This amount will be reduced to the extent of the rent paid by the employee, if
applicable.

For furnished accommodation, the value of perquisite is calculated as follows:

The perquisite amount calculated above along with:

a) 10% of the cost of furniture, appliances, and equipment’s, or

b) If the furniture, appliances, and equipment have been taken on hire by the employer,
the actual hire charges payable/paid.

In case the “same accommodation” is continued to be given to “same employee” for “more
than one financial year”, then the perquisite value from second year onwards shall be lower
of:
a. Amount calculated for the relevant year considering the new rates and

b. Perquisite calculated for first previous year * (CII for the year of valuation/CII for the
first previous year).

Other Key Notes:

• The population under new categorization is as per 2011 census and not as per 2001
census.

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• The new perquisites rates will be applicable from 1 September 2023 and hence there is a
requirement to value perquisite towards accommodation facility provided by employer
considering old valuation rates till 31 August 2023 and new rates thereafter for FY 2023-
24.

• “First previous year” refers to either FY 2023-24 or the financial year in which the
accommodation was provided to the employee whichever is later.

• In case of the furnished accommodation, the value of perquisite as determined above

will be increased by 10% which is similar to the current practice.

Example 1: An employee, Mr. Bhat, lives in a city having a population of 35,00,000 Lakhs.
His employer provides him with unfurnished accommodation throughout the financial year
2023-24. His monthly salary is INR 50,000. Compute the perquisite value of rent-free
accommodation.

The perquisite value shall be computed as under:

Particulars Apr-23 to Aug-23 Sep-23 to Mar-24

Population of city 35,00,000 35,00,000
Monthly salary (A) INR 50,000 INR 50,000
No. of months for which accommodation is provided (B) 5 months 7 months
Salary for relevant period (C = A * B) INR 2,50,000 INR 3,50,000
Valuation rate (D) 15% 7.50%
Perquisite value for relevant period (E = C * D) INR 37,500 INR 26250
Total perquisite value of rent-free accommodation INR 63,750

Example 2: Mr. Sharma’s employer leases an unfurnished house for him and provides it as
accommodation throughout the Financial Year 2024-25. Mr. Sharma’s monthly salary is INR
70,000, and the actual rent paid by his employer for the house is INR 10,000 per month.
Compute the perquisite value.

The perquisite value shall be computed as under:

Particulars Apr-24 to Mar-25
Monthly salary (A) INR 70,000
No. of months for which accommodation is provided (B) 12 months
Salary for relevant period (C = A * B) INR 8,40,000
Valuation rate (D) 10%
Value of accommodation on basis of salary (E = C * D) INR 84,000
Actual rent paid by employer for relevant period (F) INR 120,000
Perquisite Value (G = Lower of F or E) INR 84,000

2. Motor Car

If Car is owned by the Company:

Car Used for Partially for official and partially for personal purposes.
Expense paid by Running and maintenance expense is reimbursed by the employer.
Car CC <1.6 cc > 1.6 cc
Perk Amount 1800/-p.m 2400/-p.m

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If Car is owned by the Employee:

Car Used for Partially for official and partially for personal purposes.
Expense paid by Running and maintenance expense is reimbursed by the employer.

Car CC <1.6 cc > 1.6 cc

Perk Amount Actual Amount Actual Amount
reimbursed less reimbursed less
Rs.1800/-p.m Rs. 2400/-p.m

Driver Salary

Car Owned by Employer Employee

Perk Amount Rs.900/-pm Actual driver salary reimbursed
reduced by Rs,900/-p.m.

Other Vehicles

The actual amount of expenditure reimbursed by the employer less Rs. 900 p.m will be
considered as perquisite.

3. Food Coupon:

Valuation of perquisite for free food and non-alcoholic beverages provided by the employer
to an employee shall be the amount of expenditure incurred by such employer and shall be
reduced by the amount, if any, paid or recovered from the employee for such benefit or
amenity.

An exception is provided by way of a proviso to exclude the value of free food and non-
alcoholic beverages provided by such employer during working hours at office or business
premises or through paid vouchers which are not transferable and usable only at eating joints,
to the extent the value thereof in either case does not exceed Rs. 50 per meal or to tea or
snacks provided during working hours or to free food and non-alcoholic beverages during
working hours provided in a remote area or an offshore installation.

This exception will not be available if in case the new tax regime is opted. Thus, free food
and non-alcoholic beverages provided by the employer even during working hours at office or
business premises shall be fully taxable in the hands of those employees who have opted for
the New Regime.

However, the exemption for meal card is available only up to Rs. 50/-per meal or tea or
snacks, and the balance will be taxed as salary income for Old Regime opted employees.

Gas, Electricity and Water

The value of perquisite is the amount paid by the employer to the agency supplying the
amenity (free supply of gas, electricity and water) for household consumption. Any amount
paid by the employee for such facilities or services shall be reduced from the above amount.

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4. Interest free or concessional loans

The value of perquisite is the excess of interest payable at prescribed interest rate over interest
actually paid by the employee, or any member of his household. The prescribed interest rate
is the rate charged by the State Bank of India as on the 1st day of the relevant financial year.

The aggregate loan amounts (from Personal, Vehicle & Housing) should be more than
Rs.20000/- for this perquisite to apply.

5. Use of Movable assets

If the employee uses an asset owned by the employer, perquisite is charged at the rate of 10%
of the original cost of the asset, as reduced by any charges recovered from the employee for
such use. These include household furniture, white goods, though computers and laptops are
not covered under this perquisite.

What amount gets deducted under section 16?

(a) Standard Deduction

Rs. 50,000 in lieu of Transport Allowance and Reimbursement of Misc. Medical Expenditure
if the tax regime opted by employee is Old Regime.
However, if the employee has opted for New Regime, the Standard Deduction will be 75000
from FY-2024-25 onwards.

(b) Tax on Employment / Professional Tax

Professional tax or tax on employment levied by the state is allowed as a deduction.

How do I account for my loss on House Property?

For Self Occupied property

House that is constructed or acquired after April 1999 by using borrowed capital, interest on
such borrowed capital up to an amount of Rs. 200,000.00 can be claimed as a deduction. In
case, the house was acquired / constructed prior to April 1999, the amount of deduction is Rs.
30,000.

No deemed rental income on having two residential house properties: If an individual

owns more than one self-occupied house property then only one house property as per his
choice is treated as self-occupied and its annual value is computed as nil. The other house
property is deemed to be let-out as per section 23 and a notional rent is computed and charged
to tax under the head 'Income from House Property'. Section 23 has been amended with effect
from 01/04/2019 to provide relief to the taxpayers by allowing them an option to claim nil
annual value in respect of any two houses declared as self-occupied. Though from F.Y. 2019-
20, an assessee can claim annual value as nil in respect of two-self occupied house properties.
However, there is no change in aggregate limit for deduction in respect of interest on housing
loan. The aggregate deduction for interest on housing loan for both houses cannot exceed Rs.
30000 or Rs. 2,00,000 (as the case may be).

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For Let Out property

Rent received for let out property reduced by Interest on borrowed capital and 30% of the net
annual value for repair and maintenance is taken as loss / profit.

For both the above, the assessee must produce a certificate from the lender specifying the
interest payable towards the capital borrowed for construction or acquisition of a house. Only
interest paid post completion of house is entitled / eligible for deduction and Pre-EMI interest
is amortized over a period of 5 years.
Example:
1. Interest payable on housing loan (Loan taken after 01.04.1999): 280,000
2. Pre-EMI paid is Rs. 30,000
3. Rent received (in case of Let Out Property) Rs. 36000/- pa

For Self-Occupied property

Interest on housing loan (loan post 01/04/1999) is Rs. 280,000

Pre EMI at 20% on Rs. 30,000/- (Amortized over 5 years) is Rs. 6,000/-
Total loss is Rs. 286,000 however maximum allowed is restricted to Rs. 200,000/-

For Let out Property

Interest on borrowed capital is Rs. 280,000/-

Pre EMI at 20% (Amortized over 5 years) is Rs. 6,000/-
30% of annual value (36,000) is 10,800 (for repairs and maintenance)
Total of 286,000 is reduced by Rs. 25,200 (rent received maintenance) = 260,800

Total loss eligible for deduction is restricted to maximum of Rs.200, 000

Provisions under the Income-tax Law in relation to carry forward and set-
off of house property loss:

If loss under the head “Income from house property” cannot be fully adjusted in
the year in which such loss is incurred, then unadjusted loss can be carried
forward to next year. In the subsequent years(s) such loss can be adjusted only
against income chargeable to tax under the head “Income from house property”.
Such loss can be carried forward for eight years immediately succeeding the year
in which the loss is incurred.

Examples for housing Loan interest benefit:

Interest to be C/F
Total
Scenarios Self- Self- Let-Out (applicable to let out
Benefit
Occupied 1 Occupied 2 Property only)
1 -250000 -150000 -450000 -200000 -450000
2 -150000 0 -450000 -200000 -400000
3 -150000 0 450000 -150000 0
4 0 0 -450000 -200000 -250000

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What are the various Deductions allowed under Chapter VI A?

Under 80C, an employee is entitled to deductions for the amounts paid or deposited in the
current financial year in the following schemes, subject to a limit of Rs.150,000/.

• Life Insurance Premium

• Contributions to Pension Fund (80CCC)
• Contributions to recognized Provident Fund / V P F / PPF
• Contributions to approved Superannuation Fund
• Contribution to U L I P, 1971 of Unit Trust of India
• Contribution to U L I P of LIC Mutual Funds
• Annuity with any Insurance Company
• Subscription to Tax Saving Mutual Funds
• Subscription to NSC & Interest accrued on NSC subscription
• Repayment of Housing Loan principal
• Children Tuition Fees (education)
• Tax Saving Term Deposits - Scheduled Bank (5 years and more)
• Deposit under the Senior Citizen Saving Rules.
• Five Year time deposit in an account under the Post Office Time Deposit Rules
• Investment in Sukanya Samriddhi Scheme

Example:

1. Investments in LIC Rs.80000/-, PPF Rs.70000/-

Deduction available will be Rs. 150000/-
2. Investments in LIC Rs.30000/-, PPF Rs.100000/- and Infrastructure Bonds Rs.70000/-
Deduction available will be Rs. 150000/-
3. Investments in Infrastructure Bonds Rs.120000/-
Deduction available will be Rs. 120000/-
4. Investments in LIC Rs.30000/-, PPF Rs.30000/-, and Infrastructure Bonds Rs.30000/-
Deduction available will be Rs. 90000/-

Section 80D: Deduction for premium paid for Medical Insurance

Deduction under this section is available to an individual or a HUF. A deduction of Rs.

25,000 can be claimed for insurance of self, spouse and dependent children. An additional
deduction for insurance of parents is available to the extent of Rs 25,000 if they are less than
60 years of age or Rs 50,000 (has been increased in Budget 2018 from Rs 30,000) if parents
are more than 60 years old.

Therefore, the maximum deduction available under this section is to the extent of Rs. 100,000

From FY 2015-16 a cumulative additional deduction of Rs. 5,000 is allowed for preventive
health check up to individuals.

Medical expenditure incurred by assessee on the health of a senior citizen aged 60 years and
above provided that no amount has been paid to effect or to keep in force an insurance on the
health.

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The Income Tax Act does not define medical expenditure. Though medical expenditure is not
defined anywhere in the Act, but going by the motive, expenses such as consultation fees,
medicines, hearing aids and so on can be claimed as deduction.

Along with not defining the term medical expenditure, the Income Tax Act also does not
specify what documents you should keep claiming this deduction. Even then, it would be
prudent to keep documentary evidence such as medical bills, invoice of medicines and others,
in case the income tax department asks you to prove the claim of your deduction.

To establish the proof of medical expenses, one must keep the doctor's prescription along
with the copy of invoices/receipts of the consultation fees, diagnostic tests, medicine bills etc.
would be required.

Remember medical expenditure on certain specified illnesses are also covered under Section
80DDB. If you have exhausted the limit under this section, you can claim deduction for the
medical expenses under section 80D, provided you satisfy other conditions. These conditions
are: (i) expenses should be incurred for a person aged 60 years and above and (ii) he/she
should not be covered under any health insurance policy.

Particulars Case-1 Case-2 Case-3

Self & Self &
Family (no Self & Family Family (at Parents (at
one of Parents (no (no one of Parents (at least one of least one of
them is a one of them them is a least one of them is a them is a
senior is a senior senior them is a senior senior
citizen) citizen) citizen) senior citizen) citizen) citizen)
Medical
Insurance, etc.* 25,000 25,000 25,000 50,000 50,000 50,000
Medical
Expenditure** -- -- -- 50,000 50,000 50,000
Maximum
deduction
allowable 25,000 25,000 25,000 50,000 50,000 50,000
Aggregate
amount of
deduction 50,000 75,000 100,000
allowable under
section 80D

* Includes (i) contribution to the Central Government Health Scheme/notified scheme for self
& family; and (ii) amount paid for preventive health check-up up to INR 5,000.

** Allowable only if no amount is paid for medical insurance.

Note: The payment for preventive health check-up can only be made in cash, other payments
must be made by non-cash mode.

80DD - Medical Treatment for Handicapped Dependent

Deduction on medical treatment and maintenance of handicapped dependant up to

Rs.75,000 for disability below 80% and Rs. 1,25,000 for disability above 80%

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80DDB –Medical Treatment for Specified Illness/Diseases

Deduction on medical treatment of specified illness/diseases is up to Rs.40000/- for assessee

or his dependent. In case of assessee or his dependent being senior citizen or super senior
citizen, deduction is up to Rs.100000/- or actual expenditure whichever is lower. Further the
deduction amount will be reduced from the amount recovered from the insurer or from the
employer.

80E –Interest on Education Loan

The said deduction in respect of interest on loan taken for higher Education of Individual’s
relative also will be allowed i.e., 100% of amount of interest paid on such loan. “Relative” is
defined in the mean the spouse and children of the individual.

Deduction is allowed in respect of Interest on Loans taken for pursuing higher education in
specified fields of study to be extended to cover all fields of study, including vocational
studies, pursued after completion of school. Interest paid for the first 8 years on loans taken
for Higher Education such as Engineering / Medical etc. The deduction is available for a
maximum of 8 years (beginning the year in which the interest starts getting repaid) or till the
entire interest is repaid, whichever is earlier.

80EE - Interest on loan for acquiring residential house property, sanctioned during FY
2016-17

Additional exemption of Rs. 50,000 for housing loans up to Rs. 35 lakhs provided cost of
house is not above Rs. 50 lakhs (new loans taken in the FY 2016-17).

80EEA - Additional Housing Loan Interest Benefit Apr19-Mar22

A deduction for interest payments up to Rs 1,50,000 is available under Section 80EEA. This
deduction is over and above the deduction of Rs 2 lakh for interest payments available under
Section 24 of the Income Tax Act.

Therefore, taxpayers can claim a total deduction of Rs 3.5L for interest on home loan if they
meet the conditions of section 80EEA.

The conditions are as follows:

a) The loan must be taken between April 1, 2019 and March 31, 2022;
b) The value of house property must not exceed Rs 45 lakh; and
c) Individual should not own any house on the date of sanctioning of loan.
d) The individual taxpayer should not be eligible to claim deduction under the existing
Section 80EE.

80U - Permanent Physical Disability Including Blindness

An assessee certified by the medical authority with permanent physical disability is allowed a
deduction of Rs. 75,000, and in case the assessee is certified with (severe) permanent physical
disability (More than 80%), the deduction of Rs. 1,25,000 will qualify for deduction.

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80G - Donations

Section 80G provides for deductions on account of donation made to various funds, charitable
organizations etc. Generally, no deduction will be allowed by the D.D.O. from the salary
income in respect of any donations made for charitable purposes. The tax relief on such
donations as admissible under section 80G of the Act, will have to be claimed by the taxpayer
in the return of income.

However, in cases where employees make donations to the Prime Minister’s National Relief
Fund, the Chief Minister’s Relief Fund or the Lieutenant Governor’s Relief Fund through
their respective employers, it is not possible for such funds to issue separate certificate to
every such employee in respect of donations made to such funds as contributions made to
these funds are in the form of a consolidated cheque. An employee who makes donations
towards these nationalized funds is eligible to claim deduction under section 80G. It is,
hereby, clarified that the claim in respect of such donations as indicated above will be
admissible under section 80G based on the certificate issued by the Drawing and Disbursing
Officer (DDO)/Employer in this behalf - Circular No. 2/2005, dated 12-1-2005.

80TTA - Interest on Savings Bank account

Maximum deduction allowed on Interest from savings account under Sec 80TTA is
Rs.10,000/-. Interest from savings account declared will also be accounted as “Other
Income”. Sec 80TTB will allow a deduction up to Rs 50,000/- in respect of interest income
from deposits held by senior citizens. However, no deduction under section 80TTA shall be
allowed in these cases.

80CCD (1): Deduction to NPS Scheme for Contribution by the Individual

Maximum deduction is allowed under this section is within the overall Sec 80CCE limit of
Rs.1,50,000/-. Section 80CCE comprises of sub-sections 80C, 80CCC, 80CCD (1).

80CCD (1B) – Additional Voluntary contribution by individual on NPS

This additional benefit of Rs. 50,000 is over and above the benefit of Rs. 1.5 lakhs allowed to
be claimed as a deduction under Section 80CCE. Therefore, now the total deduction that can
be claimed under Section 80CCE + Section 80CCD (1B) = Rs. 2 Lakhs.

Atal Pension Yojana (APY), a pension scheme launched by Government of India is focused
on the unorganized sector workers. Under the APY, minimum guaranteed pension of Rs.
1,000/- or 2,000/- or 3,000/- or 4,000 or 5,000/- per month will start after attaining the age of
60 years depending on the contributions by the subscribers for their chosen pension amount.

Any Citizen of India can join APY scheme. However, from 1st October,2022, any citizen
who is or has been an Income Taxpayer, shall not be eligible to join Atal Pension Yojana.

The following are the eligibility criteria’s:

(i) The age of the subscriber should be between 18 and 40 years.

(ii) He/she should have a savings bank account/ post office savings bank account.

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A person who is in age group of 18 years to 39 years 364 days can join Atal Pension Yojana.

The contribution amount shall depend on the age of the subscriber at the time of opening of
APY account, frequency of contribution and the pension slab chosen.

The contributions to be made at monthly / quarterly / half yearly intervals through auto debit
facility from savings bank account/ post office savings bank account of the subscriber. The
receipt/challan copy issued by the Bank or Post office or the transaction statement of APY
account from the Bank or Post office to be submitted towards APY contribution as a proof.

Contributions made by an individual under the Atal Pension Yojana are eligible for the
deductions under section 80CCD of the Income Tax Act, 1961. Maximum deduction allowed
under section 80CCD (1) of the Income Tax Act, 1961 is Rs.1,50,000 p.a. as specified under
section 80CCE of the Income Tax Act. An additional contribution of Rs. 50,000 p.a. is
eligible for an additional deduction of Rs. 50,000 p.a. under section 80CCD(1B) of the
Income Tax Act, 1961.

80CCD (2) - National Pension Scheme (NPS Employer Contribution)

The provisions under Section 80 CCD (2) come into effect when an employer is contributing
to the NPS of an employee. This section applies to only salaried individuals and not to self-
employed individuals. The deductions under this Section can be availed over and above those
of Section 80 CCD (1) and 80CCD (1B). Section 80CCD (2) allows salaried individuals to
claim deductions up to 10% in the case of Old Regime and 14% in the case of New Regime
opted employees of their salary which includes the basic pay and dearness allowance or is
equal to the contributions made by the employer towards the NPS, whichever is less.

80EEB - Electric Vehicle Loan Interest Benefit Apr19-Mar23

The deduction under this section is available only to individuals. This deduction is not
available to any other taxpayer.

A deduction for interest payments up to Rs 1,50,000 is available under Section 80EEB. An

individual taxpayer may have an electric vehicle for personal use or for business use. This
deduction would facilitate individuals having an electric vehicle for personal use to claim the
interest paid on the vehicle loan.

Conditions for claiming the deduction:

a) The loan must be taken from a financial institution or a non-banking financial

company for buying an electric vehicle.
b) The loan must be sanctioned anytime during the period starting from 1 April 2019 till
31 March 2023.
c) “Electric vehicle” has been defined to mean a vehicle which is powered exclusively
by an electric motor whose traction energy is supplied exclusively by traction battery
installed in the vehicle and has such electric regenerative braking system, which
during braking provides for the conversion of vehicle kinetic energy into electrical
energy.

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 d) Do note that an individual taxpayer should obtain the interest paid certificate and keep
the necessary documents such as tax invoice and loan documents handy at the time of
filing of the return.

80GGC – Donation to Political Party

To claim deduction under section 80GGC, the individual is required to make donations /
contributions only to a political party or an electoral trust.
It should be noted here that, the political party referred above covers only a political party
which is registered under Section 29A of the Representation of the People Act, 1951. Any
donation / contribution to any other political party would not qualify as a deduction under
section 80GGC.
The deduction cannot be claimed by local authorities and every artificial juridical person
which is either wholly or partly funded by the Government.
The whole of the amount of contribution / donation is available as a deduction under section
80GGC. In other words, a 100% deduction is available to an amount contributed towards a
political party or an electoral trust under section 80GGC. However, total amount of deduction
allowed to an assessee cannot exceed the total taxable income of an assessee.
For claiming deduction under section 80GGC, an assessee can adopt any mode of payment
which is linked through a banking channel like online net banking or demand draft or cheque
or debit card etc.
Any contribution / donations through cash is not eligible for deduction under section 80GGC.
Further, any donations made in kind also doesn’t qualify for deduction under section 80GGC.

With effect from Financial Year 2023-2024, the following rates provided under the sub-
section (1A) of Section 115BAC (New Tax Regime) of the Income Tax Act are the rates
applicable for determining the income tax payable in respect of the total income of a person,
being an individual or Hindu undivided family or association of persons [other than a co-
operative society], or body of individuals, whether incorporated or not, or an artificial
juridical person.

New Personal Tax Regime u/s 115BAC(1A) to be the default Regime from FY 2023-24. If no
intimation is made by the employee to the employer about his/her intended tax regime, then it
shall be presumed that the employee continues to be in the default tax regime and has not
exercised the option to opt out of the new tax regime.

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 New Regime Income Tax Slab
Irrespective of the age of assessee
Income Tax Slab Tax Rate
From 0 to 3 Lakhs 0%
From 3 to 7 Lakhs 5%
From 7 to 10 Lakhs 10%
From 10 to 12 Lakhs 15%
From 12 to 15 Lakhs 20%
From 15 Lakhs & Above 30%

Notes:

• These New Tax Regime rates are applicable for all the genders and irrespective of
their age.

• Deduction under Section 16(ia) in respect of Standard Deduction of maximum INR

75,000 is available under New Tax Regime.

• In the New Tax Regime, a taxpayer will have to forgo all the commonly available tax
deductions and exemptions such as those available under section 80C, 80D, LTA
exemption, HRA exemption, Professional Tax, Housing Loan Interest etc. except for
section 80CCD (2), i.e., Employer's Contribution to NPS.

• The taxable income rebate limit under Sec 87A in the New Tax Regime is INR
7,00,000, meaning that taxpayers in the New Tax Regime with income up to INR
7,00,000 will not have to pay any income tax. Hence, taxpayers will get the maximum
rebate amount of INR 20,000 under New Tax Regime.

• Section 87A rebate is applicable for only the taxpayer who is resident in India.

• Section 87A rebate is not applicable for PAN not available cases.

• Health & Education Cess: 4% of the total of Income Tax and Surcharge.

• Following are the surcharge rates under new tax regime:

Taxable Income Range Surcharge % Marginal Rates
50 Lakhs to 1 Crore 10% 34.32
1 Crore to 2 Crores 15% 35.88
2 Crores and above 25% 39

Marginal relief to a resident individual opting New Tax Regime [Section 87A]:

Section 87A will allow a marginal relief if the total income marginally exceeds Rs. 7,00,000.
The marginal rebate under Section 87A shall be computed in the following steps:

Step 1: Calculate tax payable on total income before rebate under Section 87A

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Step 2: Calculate the difference between total income and Rs. 7,00,000.

Step 3: Calculate the difference between Step 1 and Step 2.

Step 4: If the figure in Step 3 is positive, the difference will be the rebate allowed under
Section 87A. However, if the figure is negative, then no rebate shall be allowed under Section
87A.

The marginal rebate on different ranges of incomes has been computed in the following table
for easy understanding:

Taxable Income in Net tax liability

Taxable Taxable Income Tax liability before rebate excess of INR Excess of tax over Rebate under after rebate
Income (Rounded Off) under Section 87A 700000 Taxable Income Section 87A (before Cess)
[(c) = (a) (-) INR 7
(a) (b) lakhs] [(d) = (b) (-) (c)] (e) [(f) = (b) (-) (e)]
700000 700000 20000 0 20000 20000 0
720000 720000 22000 20000 2000 2000 20000
721000 721000 22100 21000 1100 1100 21000
722000 722000 22200 22000 200 200 22000
722100 722100 22210 22100 110 110 22100
722200 722200 22220 22200 20 20 22200
722210 722210 22221 22210 11 11 22210
722220 722220 22222 22220 2 2 22220
722221 722230 22223 22230 -7 0 22223
722225 722230 22223 22230 -7 0 22223
722227 722230 22223 22230 -7 0 22223

Ministry of Finance had released Circular No. 04 of 2023 dated 05.04.2023 to provide
clarification regarding deduction of TDS under Section 192 read with sub-section (1A) of
Section 115BAC of the Income Tax Act, 1961. This circular is in supersession of Circular C1
of 2020 dated 13.04.2020 and shall be applicable for TDS during the Financial Year 2023-24
and subsequent years.

Extract of the circular:

Vide Finance Act, 2023, sub-section (1A) has been inserted in section 115BAC of the
Income-tax Act, 1961 (the Act) to provide for a new tax regime with effect from the
assessment year beginning on or after the 1st day of April 2024. This regime applies to an
individual or Hindu undivided family or association of persons [other than a cooperative
society] or body of individuals, whether incorporated or not, or an artificial juridical person.
Under this new regime, the income-tax in respect of the total income of the person shall be
computed at the rates provided in sub-section (1A) of section 115BAC, subject to certain
conditions, including the condition that the person does not avail of specified exemptions and
deductions.

The above-mentioned new tax regime is the default tax regime applicable to all persons

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mentioned above. However, under sub-section (6) of section 115BAC of the Act, a person
may exercise an option to opt out of this tax regime. A person not having income from
business or profession can exercise this option every year.

Representations have been received expressing concerns regarding tax to be deducted at

source (TDS) on salary income of a person under section 192 of the Act as the deductor,
being an employer, would not know if the person, being an employee, would opt out from
taxation under sub-section (1 A) of section 115BAC of the Act or not.

In order to avoid the genuine hardship in such cases, the Board, in exercise of powers
conferred under section 119 of the Act, hereby directs that a deductor, being an employer,
shall seek information from each of its employees having income under section 192 of the
Act regarding their intended tax regime and each such employee shall intimate the same to
the deductor, being his employer, regarding his intended tax regime for each year and upon
intimation, the deductor shall compute his total income, and deduct tax at source thereon
according to the option exercised.

If intimation is not made by the employee, it shall be presumed that the employee continues
to be in the default tax regime and has not exercised the option to opt out of the new tax
regime. Accordingly, in such a case, the employer shall deduct tax at source, on income under
section 192 of the Act, in accordance with the rates provided under sub-section (1A) of
section 115BAC of the Act. It is also clarified that the intimation would not amount to
exercising option in terms of sub-section (6) of section 115BAC of the Act and the person
shall be required to do so separately in accordance with the provisions of the sub-section.
Following are some of the frequently asked questions related to New Tax Regime:

1. I am having business income and have opted in and opted out from the new regime in
the previous years. So will I be in old regime for the FY 2023-24?
Please note that, any actions in any previous years with respect to choice of regimes will not
be applicable from FY 2023-2024. You are required to submit Form 10-IEA again in case
you want to opt for the old regime.

2. Is it necessary for the employee to specify the tax regime to the employer?

Yes. The employee must specify the tax regime he/she wants to choose to the employer.
However, at the time of filing of ITR, he/she can switch the regime as per their wish and
whichever is beneficial to them.

3. Who cannot switch between regimes every year?

Individuals/HUF with an income from business or profession are not eligible to switch tax
regimes every year. However, individuals/HUF having income from sources other than
business or profession can switch their regimes every year.

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4. Is Form 10-IE submitted earlier for opting to new tax regime discontinued?

Form 10-IE Previously utilized for opting into new tax regime has been phased out. It was in
use until FY 2022-23. Its discontinuation aligns with new tax regime being default regime.
Therefore, there is no requirement of opting for new tax regime for individuals, HUF, AOP
(other than Co-operative Society), BOI, and AJP from FY 2023-24 onwards.

5. From which Financial Year Form 10-IEA is applicable? In which case Form 10-IFA
will be applicable?

Form 10-IEA notified vide Notification No. 43/2023 dated 21st June 2023 is applicable for
individuals, HUF, AOP (other than Co-operative Society), BOI, and AJP from FY 2023-24
onwards.

Form 10-IFA notified vide Notification No. 83/2023 dated 29th September 2023 is applicable
for Co-operative Society from FY 2023-24 onwards for opting for new tax regime.

6. I don’t have any business income. While filing Form 10-IEA, I am unable to proceed
further if I select “No” for “Do you have income under the head “profits and gains from
business or profession” during the Financial Year”. What should I do?

In case you don’t have any business income and are required to file ITR1 / ITR2, then there is
no need to file Form 10-IEA in order to opt out/ re-inter the new tax regime under Section
115BAC of Income Tax Act, 1961. In such case, the option can be exercised while filing the
respective ITR form (ITR 1/ ITR 2) on or before the due date specified under Section 139 (1)
of Income Tax Act, 1961.

Applicability of Tax Benefits – Old Regime v/s New Regime:

Tax Benefits Old Regime New Regime

Sec 10 Exemptions
Leave Travel Allowance under Sec 10(5) Allowed Not Allowed
Gratuity under Sec 10(10) Allowed Allowed
Leave Encashment at the time of separation under Sec 10(10AA)
(The maximum amount which can be exempted is INR 25 lakhs from FY 2023-2024
onwards) Allowed Allowed
Retrenchment Compensation under Sec 10(10B) Allowed Allowed
Voluntary Retirement Scheme under Sec 10 (10C) Allowed Allowed
House Rent Allowance under Sec 10(13A) Allowed Not Allowed
Conveyance under Section 10(14) for disabled (divyang) employees Allowed Allowed
Exemptions of certain Allowances under section 10(14) like Children Education
Allowance, Hostel Allowance, Uniform Allowance etc., Allowed Not Allowed

Sec 16 Deductions
Standard Deduction under Sec 16(ia) Allowed Allowed
Tax on Employment under Sec 16(iii) Allowed Not Allowed

Chapter VIA Deductions

Chap VI Deductions - 80C, 80CCC, 80CCD (1), 80CCD(1B), 80D, 80DD, 80DDB,
80E, 80EE, 80EEA, 80EEB, 80U, 80TTA, 80TTB, 80G etc., Allowed Not Allowed

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Employer Contribution towards NPS u/s 80CCD (2) Allowed Allowed

Sec 24(b) Benefits

Interest on borrowed Housing Loan for a Self-occupied Property Allowed Not Allowed
Set off any loss from House Property to any other head Allowed Not Allowed
Interest paid towards Housing loan - For Income from Let-out property
**(Intra-headset-off of losses allowed in case of income from Let-out property, but
loss cannot be set-off with the other head of Income in new regime) Allowed **Allowed

Notification No. 38/2020-Income Tax dated 26th June 2020- CBDT amended Rule 2BB
notifying that a salaried employee who opts for new Concessional Tax Regime can claim
following Exempt Allowances as under Section 10(14) of Income Tax Act, 1961:

1. Tour/Transfer Allowance
2. Daily Allowance when on Travel
3. Conveyance Allowance for Duties
4. Transport Allowance for Handicapped
Notification denies benefit of exemption to those who opted for new tax Regime in respect of
free food and nonalcoholic beverage which was earlier available even if value does not
exceed fifty rupees per meal or to tea or snacks provided during working hour.

Amendment in Rules related to allowances for the purposes of clause (14) of section 10
for those who opted Lower Tax Rate Option- Section 115BAC:
An employee, being an assessee, who has exercised Lower Income Tax Rate option under
sub-section (5) of section 115BAC shall be entitled to exemption only in respect of the
allowances mentioned in sub-clauses (a) to (c) of sub-rule (1) and at serial no. 11 of the Table
below sub-rule (2) to the extent and subject to the conditions, if any, specified therein

Clause sub-clauses (a) to (c) of sub-rule (1) of Rule 2BB are as follows:

(a) any allowance granted to meet the cost of travel on tour or on transfer.
(b) any allowance, whether, granted on tour or for the period of journey in connection
with transfer, to meet the ordinary daily charges incurred by an employee on account
of absence from his normal place of duty.
(c) any allowance granted to meet the expenditure incurred on conveyance in
performance of duties of an office or employment of profit, provided that free
conveyance is not provided by the employer.
(d) any transport allowance granted to an employee, who is blind [or deaf and dumb] or
orthopedically handicapped with disability of lower extremities, to meet his
expenditure for the purpose of commuting between the place of his residence and the
place of his duty - Rs. 3,200 per month.

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Extract of Revised clause (iii) of sub-rule (7) of Income Tax rule 3 related to Valuation
of perquisites:
No exemption for free food and non-alcoholic beverage provided by such employer through
paid voucher.

Rule 3 deals with valuation of perquisites. Rule 3(7)(iii) provides for valuation of perquisites
for free food and non-alcoholic beverages provided by the employer to an employee. The
value of such perquisite shall be the amount of expenditure incurred by such employer and
shall be reduced by the amount, if any, paid or recovered from the employee for such benefit
or amenity.

An exception is provided by way of a proviso to exclude the value of free food and non-
alcoholic beverages provided by such employer during working hours at office or business
premises or through paid vouchers which are not transferable and usable only at eating joints,
to the extent the value thereof in either case does not exceed Rs. 50 per meal or to tea or
snacks provided during working hours or to free food and non-alcoholic beverages during
working hours provided in a remote area or an offshore installation.

This exception is withdrawn in case the new tax regime is opted. Thus, free food and non-
alcoholic beverages provided by the employer even during working hours at office or
business premises shall be fully taxable in the hands of those employees who have opted for
the new tax regime.

Capping on Employer’s contribution (applicable for both Old & New Regime):

Employer funded retirement schemes such as Employee Provident Fund, National Pension
Scheme, and Approved Superannuation Fund are currently nontaxable to the employee up to
12% for PF, 10% for NPS, INR 150,000/- per annum for SAF respectively.

The combined cap of INR 750000 per annum has been introduced in Budget 2020-21 in
respect of the Employer’s Contribution to these schemes and amount in excess of INR
750000 will be taxed as perquisite in the hands of the employees.

Any annual accretion by way of interest, dividend, or any other amount of similar nature
during the financial year to the balance at the credit of the fund or scheme may be treated as
perquisite to the extent it relates to the employer’s contribution which is included in total
income.
While the excess employer contribution above Rs. 7.5 lakhs p.a. is taxable u/s 17(2) (vii), the
annual accretion attributable to such excess contribution is taxable u/s 17(2) (viia). These
provisions are applicable from FY 2020-21 onwards.

The CBDT had notified a new Rule 3B (Rule) on 5th March 2021 with effect from 1st April
2020. The Rule prescribed a formulary approach for computing the value of annual accretion
on excess contributions. The Rule prescribes the following formula:

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TP = (PC/2) *R + (PC1+TP1) *R

Where,

TP = taxable perquisite under Sec 17(2) (viia) for the current tax year

TP1 = Aggregate of taxable perquisite under Sec 17(2) (viia) for the tax year or years
commencing on or after 1 April 2020 other than the current tax year

PC = Amount or aggregate of amounts of principal contribution made by the employer in

excess of INR 750,000 to the specified funds during the current tax year

PC1 = Amount or aggregate of amounts of principal contribution made by the employer in

excess of INR 750,000 to the specified funds for the tax year or years commencing on or after
1 April 2020 other than the current tax year (see ‘Note’ below)

R = I/ Favg

I = Amount or aggregate of amounts of income accrued during the current tax year in the
specified funds

Favg = (Amount or aggregate of amounts of balance to the credit of the specified funds on
the first day of the current tax year + Amount or aggregate of amounts of balance to the credit
of the specified funds on the last day of the current tax year)/2.

Note: Where the amount or aggregate of amounts of TP1 and PC1 exceeds the amount or
aggregate of amounts of balance to the credit of the specified funds on the first day of the
current previous year, then such excess shall be ignored for the purpose of computing the
amount or aggregate of amounts of TP1 and PC1.

Taxability of Interest on Employee’s PF & VPF Contribution (applicable for both Old
& New Regime):

Any interest income accrued during the Financial Year shall be taxable to the extent it relates
to the amount or aggregate of amounts of contribution exceeding INR 2,50,000 made in a
Financial Year on or after 1st April 2021 and computed in such manner as may be prescribed.
The provision is applicable for employee’s contribution only. The employer’s contribution is
not covered in this provision.

The interest income earned on excess contribution will be taxable only in those cases where
the employees’ annual PF and VPF contribution exceeds Rs. 2.5 lakhs.

The interest income accruing in respect of the employee’s contribution over Rs. 2.5 lakhs
shall be taxable under the head ‘Income from Other Sources’ as it is not accruing from an
employer-employee relationship.

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Illustration showing interest calculation and TDS thereon:

Mr. XYZ has an annual salary (Basic + DA) of INR 25 Lakhs.

His contribution to PF is 12% in the FY 2021-22.
Assuming the rate of interest on EPF is 8.5% per annum, his tax liability will be calculated in
the following manner:

His Contribution in the Fund = 25 Lakhs *12% = INR 3 Lakhs

Excess contribution (INR 3 Lakhs-2.50 Lakhs) = INR 50,000
Interest on excess contribution = INR 50,000*8.5% = INR 4250

This amount of Rs. 4250 will be added to the employee’s taxable income as ‘Income from
Other Sources’ and taxed according to his tax slab. There are no special rates for the
taxability of this interest. Hence, such income shall be taxed at the prevailing income tax
rates.

Note:

The government had raised the threshold limit of tax-exempt contributions to the Provident
Fund (PF) to Rs 5 lakh (from Rs 2.5 lakh announced in Budget 2021), subject to certain
conditions. This increased tax-exempt limit is applicable to only those PF contributions where
there is no employer contribution.

The calculation logic be better understood considering the following example:

Amount (in INR) Whether

Contributed by employer Whether
employee during contributing to interest earned How much interest on employee's
Financial Year fund? shall be taxable? contribution shall be taxable?
1,50,000 Yes No Not taxable till amount INR 2,50,000
2,50,000 Yes No Not taxable till amount INR 2,50,000
2,50,000 No No Not taxable till amount INR 5,00,000
Interest on contribution of INR 1,50,000
4,00,000 Yes Yes (4,00,000 -2,50,000)
4,00,000 No No Not taxable till amount INR 5,00,000
Interest on contribution of INR 50,000
5,50,000 No Yes (5,50,000 -5,00,000)
Interest on contribution of INR 3,00,000
5,50,000 Yes Yes (5,50,000 -2,50,000)

Linking of Aadhaar with PAN:

Under the provisions of the Income Tax Act, 1961(the ‘Act’) every person who has been
allotted a PAN as on 1st July 2017 and is eligible to obtain Aadhaar Number, is required to
intimate his Aadhaar to the prescribed authority on or before 31st March 2023, on payment of
a prescribed fee of INR 1,000. Failure to do so shall attract certain repercussions under the
Act w.e.f. 1st April 2023. However, the date for intimating Aadhaar to the prescribed

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authority for the purpose of linking PAN and Aadhaar has now been extended to 30th June
2023.

From 1st July 2023, the PAN of taxpayers who have failed to intimate their Aadhaar, as
required, shall become inoperative and the consequences during the period that PAN remains
inoperative will be as follows:

a) No refund shall be made against such PAN’s.

b) Interest shall not be payable on such refund for the period during which PAN remains
inoperative.
c) TDS and TCS shall be deducted /collected at higher rate, as provided in the Act.

Hence, there could be a requirement to withhold tax taxes at the higher rate of 20% or the
average estimated tax rate for the financial year. Further, the employer could have a challenge
in filing the quarterly tax withholding returns, since the employee’s PAN becomes in-
operative. It is therefore important for employers to ensure that the employees' PAN’s are
duly linked with the Aadhaar.

The PAN can be made operative again in 30 days, upon intimation of Aadhaar to the
prescribed authority after payment of fee of INR 1,000.

Those persons who have been exempted from PAN-Aadhaar linking will not be liable to the
consequences mentioned above. This category includes those residing in specified States, a
non-resident as per the Act, an individual who is not a citizen of India or individuals of the
age of eighty years or more at any time during the Financial Year.

Section 234H extract:

[234H. Without prejudice to the provisions of this Act, where a person is required to intimate
his Aadhaar number under sub-section (2) of section 139AA and such person fails to do so on
or before such date, as may be prescribed, he shall be liable to pay such fee, as may be
prescribed, not exceeding one thousand rupees, at the time of making intimation under sub-
section (2) of section 139AA after the said date.]

Rule 114AAA extract:

[114AAA. Where a person, whose permanent account number has become inoperative under
sub-rule (1), is required to furnish, intimate or quote his permanent account number under
the Act, it shall be deemed that he has not furnished, intimated or quoted the permanent
account number, as the case may be, in accordance with the provisions of the Act, and he
shall be liable for all the consequences under the Act for not furnishing, intimating or quoting
the permanent account number.]

It is mandatory to link one’s PAN with Aadhaar card as it helps the Government to track all
the financial transactions undertaken by the taxpayers in India. It also helps the Government
to keep a check on tax evasion. As PAN and Aadhaar are both identity proofs of an
individual, linking these two prevents an individual from holding multiple PAN’s and avoid
tax and other related frauds.

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The prerequisites of linking PAN with Aadhaar are:

• A valid PAN

• A valid Aadhaar number

• A valid mobile number

Exemption from Aadhaar-PAN linking:

It is mandatory to quote and linked Aadhaar number while filing income tax return unless
specifically exempted. CBDT has notified that Section 139AA of the Income Tax Act is not
applicable to the following individuals. In other words, Aadhaar-PAN linking is presently
exempted for the individual who is:

(a) Not a citizen of India.

(b) Non-resident as per the Income Tax Act, 1961.
(c) Super senior citizen (age of eighty years or more)
(d) Residing in the States of Assam, Jammu and Kashmir, and Meghalaya.
However, for users falling in any of the above category, voluntarily desires to link his/her
Aadhaar with PAN, fee payment of specified amount is required to be done.

Frequently asked questions:

1. What is the deadline to link my PAN to Aadhaar?

The date for intimating Aadhaar to the prescribed authority for the purpose of linking PAN
and Aadhaar has been extended to 30th June 2023.

2. What will happen if my PAN is not linked to Aadhaar after the due date?
The last date of linking PAN to Aadhaar is 30th June 2023. Failure to do the same will make
your PAN invalid. You will be able to activate the PAN only after linking it to Aadhaar.

3. Who needs to link their PAN with Aadhaar?

Section 139AA of the Income Tax Act provides that every individual who has been allotted a
permanent account number (PAN) as on the 1st day of July 2017, and who is eligible to
obtain an Aadhaar number, shall intimate his Aadhaar number in the prescribed form and
manner.

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4. What are the benefits of linking PAN with Aadhaar?
• It removes the possibility of an individual having more than one PAN Card.
• Linking of Aadhaar with PAN allows the Income Tax Department to meticulously
detect any form of tax evasion.
• The process of filing income returns become considerably easy as the individual is not
required to provide any proof of him or her having filed their income tax returns.
• Linking of your Aadhaar with PAN will prevent the latter from getting cancelled.
• The linking of PAN with Aadhaar will help in having a summarized detail of one’s
taxes attached to Aadhaar for future reference.
5. If I don’t fall into the taxable bracket, do I still have to get an Aadhaar card, or have
it linked to my PAN?

Yes, it is advisable that you apply for an Aadhaar card and have it linked with your PAN.
Aadhar is now necessary to avail most government benefits and so it is advisable to apply for
it and get it linked with PAN to ensure that your PAN is valid.
6. Do NRIs residing in India have to link their PAN as well?

The requirement to quote Aadhaar for filing income tax returns and for making an application
for allotment of PAN with effect from July 1, 2017, does not apply to nonresident Indians
[NRIs].

7. Is it mandatory to create an account with the department website?

No, it is not necessary to have an account with the department website. There is a direct link
that is available which you can use to link your PAN and Aadhaar Card.
8. Do I have to submit any documentary proof to link my PAN and Aadhaar card?

No, you are not required to submit any documents when linking your Aadhaar to your PAN
card. You must check if the PAN information mentioned on the website matches your
Aadhaar card and then apply for them to be linked.
9. What are the details I must check when linking my PAN with my Aadhaar card?

When linking your PAN with your Aadhaar card, you must make sure that your name, date of
birth and gender as displayed on the income tax website matches with the details on your
Aadhaar card.
10. What will be the consequences if I do not link Aadhaar with PAN?
If you do not link your Aadhaar with PAN till 30th June 2023, your PAN will become
inoperative. If PAN becomes inoperative, you will not be able to furnish, intimate or quote
your PAN and would be liable to all the consequences under the Act for such failure.

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This will have several implications such as:

• You shall not be able to file return using the inoperative PAN
• Pending returns will not be processed
• Pending refunds cannot be issued to inoperative PANs
• Pending proceedings as in the case of defective returns cannot be completed once the
PAN is inoperative
• Tax will be required to be deducted at a higher rate as PAN becomes inoperative.
In addition to the above, you might face difficulty at various other fora like banks and other
financial portals, as PAN is one of the important KYC criteria for all kinds of financial
transactions.

11. What are the consequences of PAN becoming inoperative as per the Rule 114AAA?
Consequences of PAN becoming inoperative on not linking with Aadhaar as per the newly
substituted Rule 114AAA:

(i) Consequent to the notification substituting Rule 114AAA of the Income Tax Rules, 1962
(the Rules) vide notification no. 15 of 2023 dated 28th March 2023, it is hereby clarified that
a person who has failed to intimate the Aadhaar number in accordance with section 139AA of
the Income Tax Act, 1961 (the Act) read with Rule 114AAA shall face the following
consequences because of his PAN becoming inoperative:

a) Refund of any amount of tax or part thereof, due under the provisions of the Act shall
not be made to him.
b) Interest shall not be payable to him on such refund for the period, beginning with the
date specified under sub-rule (4) of Rule 114AAA and ending with the date on which
it becomes operative.
c) Where tax is deductible under Chapter XVJJ-B in case of such person, such tax shall
be deducted at higher rate, in accordance with the provisions of Section 206AA.
d) Where tax is collectible at source under Chapter XVJJ-BB in case of such person,
such tax shall be collected at higher rate, in accordance with the provisions of Section
206CC.
(ii) These consequences shall take effect from 1st July 2023 and continue till the PAN
becomes operative. A fee of INR 1,000 will continue to apply to make the PAN operative by
intimating the Aadhaar number.

(iii) The consequences of PAN becoming inoperative shall not be applicable to those persons
who have been provided exemption from intimating Aadhaar number under the provisions of
sub-section (3) of Section 139AA of the Act.

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Note:

The Central Board of Direct Taxes (CBDT) has issued Circular No. 6, issued on April 23,
2024, aims to provide relief to those who have collected Tax Deducted at Source (TDS) or
Tax Collected at Source (TCS) at the normal rate but were required to deduct or collect at
higher rate due to PAN inoperability.

Since July 1, 2023, there has been a requirement to deduct or collect TDS/TCS at higher rate
if the PAN of the deductee is inoperative due to non-linkage with Aadhaar.

Deductors/collectors will not be treated as defaulters for tax deducted at the normal rate for
transactions conducted until March 31, 2024. If the PAN of the deductee is linked with
Aadhaar and becomes operative by May 31, 2024, then there will be no liability on the
deductor/collector to deduct/collect tax at higher rate under sections 206AA/206CC.

This relief applies specifically to transactions executed up to March 31, 2024. Action must be
taken to link PAN with Aadhaar by May 31, 2024, to avoid any adverse consequences.

For transactions occurring on or after April 1, 2024, it is essential to ensure that the PAN of
the deductee is linked to Aadhaar and remains valid.

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