CBDT reminds employers of TDS obligations, highlights penalty for failure
Summary
- In a circular issued on Thursday, CBDT highlighted that penalty is applicable where tax is not deducted at source on perquisites that are given in kind, according to a change in law introduced by way of Finance Act 2023.
NEW DELHI : The Central Board of Direct Taxes (CBDT) has emphasized the obligation to deduct tax at source (TDS) by employers and others making various payments, reiterating the legislative changes introduced in the past few years on penalty provisions.
In a circular issued on Thursday, CBDT highlighted that penalty is applicable where tax is not deducted at source on perquisites that are given in kind, according to a change in law introduced by way of Finance Act 2023.
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The penalty in such case is a sum equal to the amount of tax that was not deducted or paid to the government.
CBDT also explained that penalty and prosecution provisions will not apply if an employer makes the tax payment to government by the time the TDS statement for the quarter is filed, in another legislative change introduced through the Finance Act of 2024.
The circular, which is effective for FY25, gives details of changes introduced through the two Finance Acts of last year and the Finance Act of 2023 regarding rates of TDS from income paid under the head ‘salaries'.
Since the last circular issued by CBDT for FY23, multiple changes have been introduced by the annual Finance Acts with respect to deduction on salaries but they were scattered in various sections, said Amit Maheshwari, tax partner at AKM Global, a tax and consulting firm.
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The latest circular consolidates the changes made during the last two years such as tax slab rates, deduction thresholds, tax exemption limit for leave encashment and definitions. “This circular will act as a ready reference for employers to discharge their TDS obligations effectively. This will also help the salaried taxpayers to understand their tax obligations and make applicable tax compliances," said Maheshwari.
The circular provides critical updates on income-tax deduction from salaries and captures the significant changes, particularly around perquisite valuation and enhanced exemptions, and clarified surcharge rates, said Rajat Mohan, senior partner at chartered accountancy firm AMRG & Associates.
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The updated Form 16 improves income reporting transparency, particularly for employees with multiple employers, and enhances accountability through a revised verification process, Mohan said. The changes aim to align salary tax deductions with recent legislative amendments, ensuring compliance and ease of tax administration for employers and employees alike, said Mohan. The clearer compliance guidelines and streamlined reporting requirements are a progressive step towards transparent and efficient tax governance, he said.
