How to Configure the New Income Tax Slabs and Rebates in Tally Prime

Managing employee payroll in India requires configuring software to match statutory changes announced in the annual Union Budgets. The updates to the **New Tax Regime** (which remains the default tax path) have introduced new rebate levels and standard deductions.

For payroll administrators, CAs, and business owners using Tally Prime's Payroll module, these updates must be configured in your database to ensure accurate Monthly TDS deductions on salaries. Let's walk through how to configure these tax slabs step-by-step.

1. Slabs and Deductions: What Has Changed?

Under the tax slabs, the New Tax Regime offers standard deduction and rebate benefits for salaried employees:

• Standard Deduction: The standard deduction for salaried individuals is defined at **₹75,000**, reducing taxable salary income.
• Section 87A Tax Rebate: Complete tax rebate is available for taxable income up to **₹12,000,000** (capping the rebate at ₹60,000), resulting in zero net tax for income up to this threshold.

If an employee's taxable income exceeds ₹12 lakh by even a single rupee, the tax is calculated from the basic slabs without the rebate. Thus, precise TDS calculations are essential.

2. Configuring Employee Tax Regimes

Before calculating salary TDS, map each employee's tax regime declaration:

1. Go to **Gateway of Tally > Alter > Payroll Income Tax Configurations** (under Statutory Details).
2. Select **Tax Regime** and choose the appropriate Employee Category (e.g., General, Senior Citizen).
3. Tally will display a list of all active employees. By default, Tally Prime maps them to the **New Tax Regime**.
4. For employees who have declared and chosen the Old Tax Regime, select their name and change the setting to **Old Tax Regime (under Section 115BAC)**. Save the changes.

3. Updating Slab Rates in Tally Prime

If your system is not set to auto-update via TSS statutory files, you can configure the tax rates manually:

Navigate to **Gateway of Tally > Alter > Payroll Income Tax Configurations > Tax Slabs**.

Select the **New Tax Regime** slab table and configure the rates:

4. Verifying Income Tax Computations

Once salaries are processed using **F5 (Payroll Auto-Fill)** vouchers, verify the calculations:

Go to **Display More Reports > Statutory Reports > Income Tax > Computation**. Select an employee to review their gross earnings, standard deductions, HRA exemptions (if on the Old Regime), and net tax deductions.