Summary of this article
Employers recalculate annual TDS from April 1 each year
April salary reflects revised CTC, regime choice, fresh declarations
New HRA rules widen metro list, add landlord relationship disclosure
Missed investment proofs can mean higher early-year TDS
With effect from 1 April, the commencement of a new financial year under the Income Tax Act, 1961, every employer is statutorily required to undertake a fresh, annualized computation of taxable salary and the corresponding deduction of tax at source (TDS).
April Salary, New Tax Math
The earlier year’s income cycle stands closed as of 31 March, and the payroll for April reflects a re-projection of annual income based on the revised cost-to-company (CTC), increments (if any), bonus structures, and the employee’s chosen tax regime.
“In the absence of a specific option exercised by the employee, employers generally proceed on the footing of the default tax regime under Section 115BAC. Consequently, April salaries often witness recalibrated TDS deductions, which may materially impact take-home pay depending upon declarations furnished and structural changes in salary components such as basic pay, Housing Rent Allowance (HRA), and special allowances,” says Tushar Kumar, advocate, Supreme Court of India.
Bigger HRA Relief For More Cities
There are changes proposed to HRA exemption calculations where the definition of “metro cities” has been widened to include cities such as Bengaluru, Hyderabad, Pune, etc., allowing them to claim up to 50 per cent of the basic salary in computing the HRA exemption.
“Further, it will now also be mandatory to report your relationship with your landlord while claiming the same. Since the new regime is the default, taxpayers opting for the old regime will have to expressly opt out of the new regime while filing the ITR,” says Ritika Nayyar, partner, Singhania & Co.
Submit rent receipts and the landlord’s PAN details to HR by March or April, especially if annual rent exceeds Rs 1 lakh. Investment proofs for claims such as health insurance and pension contributions must typically be submitted between April and May to ensure lower monthly TDS. If you miss the deadline, you can still claim the deduction while filing your tax return, but the excess tax would have already been deducted.
Investment Declarations Due Again
In April, you also need to make all exemption and deduction claims again. This includes HRA, Sections 80C and 80D, and deduction of home loan interest. Employees need to submit fresh investment declarations in the new financial year.
HRA exemption is computed annually based on statutory parameters, actual HRA received, rent paid in excess of 10 per cent of salary, and 50 per cent/40 per cent of salary, depending upon metro or non-metro classification. If you do not submit timely declarations, then it will result in high TDS during the initial months. There would be adjustments made after you submit proof later in the year. So April 1 is not just a transition phase but also a time to reset compliance, and that has direct financial consequences.
