Budget FY 2014-15 – Tax on Salary

As you are aware, the Union Budget for FY 2014-15 was tabled in the Parliament by the Finance Minister of India on 10-Jul-2014. There are some changes to the computation of tax on salary which payroll managers need to consider for FY 2014-15.

1. Changes in tax rates

The revised tax rates for salaried employees (aged 60 years and below) for FY 2014-15 are as follows.

Total Income for the Year in Rs. Tax Rate in %
Up to 2,50,000 Nil
2,50,001 to 5,00,000 10
5,00,001 to 10,00,000 20
Above 10,00,000 30

The revised tax rates for salaried employees (aged above 60 years but below 80 years) for FY 2014-15 are as follows.

Total Income for the Year in Rs. Tax Rate in %
Up to 3,00,000 Nil
3,00,001 to 5,00,000 10
5,00,001 to 10,00,000 20
Above 10,00,000 30

2. Increase in deduction under Section 80C

The deduction under 80C (Life insurance premium, PPF, investment in National Savings Certificate, interest from notified bank deposits, principal repayment on housing loan, etc.) was restricted to Rs.1 lakh in 2013-14. The same has been increased to Rs. 1.5 lakh for 2014-15.

Consequent to the change in section 80C, section 80CCE has been amended so as to raise the
limit of aggregate deduction under sections 80C, 80CCC and 80CCD from Rs. 1 lakh to Rs.1.5 lakh.

3. Increase in deduction under Section 24 – Interest on housing loan

The tax deduction on housing loan interest payment (for a self occupied property) was restricted to Rs. 1.5 lakh per annum in FY 2013-14. For the year 2014-15, the limit has been increased to Rs. 2 lakh.

There is no reference to Section 80EE in the Finance Bill for FY 2014-15. Hence, the carry forward of unutilized tax deduction for first time owners of residential property, if applicable, is available for FY 2014-15.

1. The Education Cess stays at 3%.
2. In case the total taxable income goes beyond Rs. 1 crore in the year, a surcharge of 10% (subject to marginal relief) is to be deducted – as it was in FY 2013-14.

What about the tax credit of up to Rs. 2,000?

We have received queries from payroll managers regarding the availability of Rs. 2,000 tax credit in FY 2014-15. The Financial Bill tabled in the Parliament does not provide for the removal of tax credit under Section 87A. Hence, the tax credit of Rs. 2,000 is available for FY 2014-15 as long as the total income does not exceed Rs. 5 lakh for the year.

How about some reforms?

Now that the new government has presented the first budget of its term, it is probably time that the government turned its attention to simplifying the administration of tax on salary. The current procedures are needlessly complex and procedurally cumbersome for employers. Here are some suggestions:

a. Make TDS on salary similar to TDS on other payments. Employers could be asked to deduct a standard rate (say, 10%) and the primary responsibility of payment of tax on salary could be placed on employees.

b. Stop asking employers to verify the proof of investment while providing tax benefits to employees. Employers expend significant efforts each year in scrutinizing the documents submitted by employees. Surely, organizations are better off focussing on their business transactions rather than working as an extension of the Income Tax Department.

c. Do away with or simplify calculation of some of the tax exemptions. We have talked about the complexity related to calculation of exemptions such as those on Leave Travel Allowance in earlier posts.

d. Do away with quarterly return (Form 24Q) and instead ask employers to submit the break-up of TDS on salary along with the PAN of individual employees at the time of monthly TDS remittance (similar to providing employee-wise breakup of Provident Fund amounts in the PF challan).

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Leave a Comment (12) ↓


  1. P A JOHNSON November 9, 2014

    The rule restricting housing loan interest rebate to 30,000 for extension,repair, renovation still exists or is it considered at par with construction?

    • gautham November 9, 2014

      Yes, it is still Rs 30,000. If housing loan is borrowed for reconstruction, repairs or renewals of a house property, then the maximum deduction on account of interest is Rs.30,000.

  2. PA JOHNSON November 10, 2014

    Whether the full amount re-imbursed towards foriegn LTC is taxable?

    • gautham November 11, 2014

      Yes. Any Leave Travel Allowance amount spent on foreign travel is fully taxable.

  3. Ashutosh December 10, 2014

    If I have taken a loan for an under construction house property, and the construction does not complete with in the 3 long years starting from the date of sanction of the housing loan and instead completes in say 4 yrs. Will I be able to get the rebate on the interest + principal under section 24 for these 4 yrs.
    Please help in clarifying,


    • gautham December 11, 2014

      You can get the tax benefit on the interest paid during the construction period (by the divided by 5 method) under Section 24. There shall be no benefit (under Section 80C) on the principal repaid during the construction period.

  4. Kallappa February 5, 2015

    Dear sir,

    Leave salary encashment is exempt from tax or not.

    • gautham February 13, 2015

      Leave salary encashment is fully taxable if it is received during service. At the time of resignation or retirement it is non-taxable subject certain limits/conditions.

  5. ravindra March 24, 2015

    i have taken personal loan for the purpose of house repairing and renovation from the cooperative bank i can relief in interest and principal amount which i paid installment in the year of 2014-2015

    • gautham March 26, 2015

      No, personal loan cannot be considered for tax exemption.

  6. Ravi July 28, 2015

    i earn 12000 rupees per month salary i give the tds?

    • gautham July 28, 2015

      If Rs 12,000 is your gross pay per month, your salary is not taxable.


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