Analysis of Changes in Deductions from Salaries: Comparing Clause 19 of Income Tax Bill, 2025 with existing sections 16 and 10 of the Income Tax Act, 1961.

Clause 19 Deductions from salaries

Income Tax Bill, 2025

1. Introduction

The Income Tax Bill, 2025 proposes significant changes to the deductions allowed from salary income through Clause 19, which aims to consolidate and restructure various deductions currently spread across Sections 16 and 10 of the Income Tax Act, 1961.

2. Key Structural Changes

• Consolidation Approach: Clause 19 adopts a tabular format listing all salary-related deductions in one place, making it more organized compared to the current scattered provisions
• Comprehensive Coverage: The new clause incorporates deductions currently present in both Section 16 and relevant portions of Section 10
• Systematic Categorization: Deductions are clearly categorized with specific serial numbers and detailed conditions

3. Major Changes in Standard Deduction

Current Provision (Section 16):

• Standard deduction of Rs. 50,000
• Special provision for taxpayers u/s 115BAC with Rs. 75,000 deduction

Proposed Change (Clause 19):

• Two-tier standard deduction structure:
• Rs. 75,000 for taxpayers u/s 202(1)
• Rs. 50,000 for other cases
• Clearer integration with the new tax regime

4. Gratuity-Related Changes

Current Position (Section 10(10)):

• Multiple sub-clauses dealing with different types of gratuity
• Complex structure with scattered provisions

Proposed Structure:

• Consolidated treatment under Serial Numbers 3-6 of the Table
• Clear categorization of different types of gratuity:
• Death-cum-retirement gratuity
• Defence services gratuity
• Payment of Gratuity Act gratuity
• Other gratuities

5. Pension and Leave Salary Provisions

Existing Framework:

• Scattered across Section 10(10A) and 10(10AA) sub-clauses
• Complex interpretation required

New Framework:

• Systematic treatment under Serial Numbers 7-9 for pension
• Clear provisions for leave salary under Serial Numbers 13-14
• Detailed calculation methodology provided

6. Retrenchment Compensation

Current Treatment:

• Covered u/s 10(10B) with multiple cross-references

Proposed Treatment:

• Consolidated under Serial Numbers 10-11
• Clear specification of limits and conditions
• Improved clarity on calculation methodology

7. Voluntary Retirement Scheme (VRS)

Existing Provision:

• Complex structure in Section 10(10C)

New Provision:

• Streamlined under Serial Number 12
• Clear monetary limit of Rs. 5,00,000
• Comprehensive list of eligible employers

8. Practical Implications

1. Enhanced Clarity:

• Better organized provisions
• Reduced need for cross-referencing
• Clearer computation methodology

2. Administrative Efficiency:

• Simplified compliance process
• Better understanding for taxpayers
• Reduced litigation potential

3. Taxpayer Impact:

• More transparent deduction structure
• Easier calculation of eligible deductions
• Better planning opportunities

9. Conclusion

Clause 19 represents a significant improvement in the organization and clarity of salary-related deductions. The consolidation of provisions and systematic presentation will likely lead to better compliance and reduced disputes.

 

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Full Text:

Clause 19 Deductions from salaries

 

Dated: 27-2-2025