The new and old tax regimes change how TDS on salary is computed every month. Here is how good payroll software handles both, and what to check before you choose.
Why Payroll Software Must Know Both Regimes
Employees in India can opt for the new or the old income tax regime each year, and the employer must deduct TDS on salary accordingly. The two regimes differ in slabs, in deductions and in rebate rules. Payroll software that supports only one forces HR to compute the other by hand, which is where errors creep in.
What Differs Between the Regimes
| Aspect | Old regime | New regime |
|---|---|---|
| Slabs | Own set of slabs, higher basic exemption for senior citizens | Own set of slabs with different bands |
| Deductions and exemptions | Section 80C, 80D, HRA exemption and others available | Most exemptions not available |
| Standard deduction | Available | Available |
| Rebate | Under section 87A with its own limit | Under section 87A with its own, higher limit |
| Declaration | Employee declares investments and rent | Employee opts in, few declarations |
Slab figures and limits change with each Budget, so do not hard-code them. Your payroll system should let you edit the income tax slab by year and assign it to each employee through the salary structure.
How Payroll Software Computes Monthly TDS
- Project the annual taxable salary from the structure, arrears, bonuses and already paid months
- Subtract the standard deduction and, for the old regime, declared exemptions
- Apply the slabs and rebate, then add health and education cess
- Divide the remaining tax by the number of months left in the year
- Recalculate every month so a bonus or a revised declaration is absorbed in the remaining months
Statutory Components Beside TDS
PF, ESI and professional tax sit beside TDS in the same structure. Employee and employer shares post to separate payable accounts so the month-end challans reconcile to the ledger. Professional tax slabs differ by state and need to be configured for your state.
Verify slabs every Budget year. Update the income tax slab, rebate and standard deduction when the Finance Act changes them, and test with two or three sample employees before running payroll.
What to Look For When You Choose
- Both regimes with editable slabs and a rebate setting
- Declaration and exemption categories for the old regime
- Arrears, bonus and additional salary included in projection
- TDS posted to a payable account for easy challan payment
- A clear statement of which statutory outputs, such as Form 16 and return files, are included
NexoraERP supports India new and old regime slabs inside its HR and payroll module. If you need Form 16 and statutory file outputs as well, look at our dedicated TDS payroll software and NexoraHRMS payroll. This article is general information, not tax advice; confirm current rules with your chartered accountant.
HR and payroll ERPTDS payroll softwarePF payroll softwareWhat is payroll software
Run a Sample Payroll in a Free Demo
Free consultation, no commitment. We usually reply within 24 hours.
Book a Free Demo +91 98115 51004