Tax deduction sections

A tax deduction section is the rule record for one deduction an employee can claim, such as 80C, 80D or 80CCD(1B): how much of a claim counts, under which regime, and whether the employer may allow it at all. Salary TDS uses it every time it works out an employee's tax. Each line of a verified tax declaration names a Section Code. xMatix finds the section with that code and decides how much of the claim reduces taxable income. The result feeds the monthly TDS projection, and through it the TDS deduction in the payroll run and the annual salary rows of the TDS return.

Overview

You keep one Tax Deduction Section row for each section employees may declare. Each row holds:

• Identification: a Name, an optional Label, the Section Code (the 1961 Act number declarations use), the Section Code (2025 Act) and an optional Financial Year.
• Limits: the Aggregate Cap Group and Aggregate Cap Amount for sections that share one combined ceiling, the section's own Max Amount, and a Senior Max Amount.
• Regime Availability: Allowed In Old Regime, Allowed In New Regime and Employer May Allow.
• Evidence: Requires Proof, Evidence Kind and Sort Order.
• Scope: Is Active and, optionally, the company the row belongs to (Partner Account).

No sections are supplied with the product. You enter them from the current Finance Act. A declaration line whose code has no section counts for nothing, so the section list decides which claims can lower anyone's TDS.

When to use it

• Before the first payroll run in which declarations should count. Create a section for every code your employees declare.
• When the Budget changes a ceiling, moves a section between regimes or changes a shared ceiling.
• When a verified declaration does not lower TDS. A missing, inactive or mistyped section is a common cause.
• When a new section code starts appearing on declarations. Add the section before the next projection.

How xMatix handles it

Each time xMatix computes an employee's salary tax (Project TDS or Calculate on a payroll run, and the Q4 salary TDS return), it collects the employee's claims and applies the sections:

1. Collects the claim lines. It reads the lines of the employee's Verified or Approved declarations for the financial year. Each line's amount is its Verified Amount, or its Declared Amount when Verified Amount is blank. Lines of zero or less are left out.
2. Finds the section for each line. It looks for rows that are not deleted, whose Is Active is not unticked, and whose Section Code is the line's code. Capital and small letters don't matter. The row's Financial Year must be the year being computed or blank, and its Partner Account must be the payroll company or blank. A line with no matching section is dropped without a warning.
3. Picks one row per code. If several rows match one code, one of them is used and you cannot tell which. A company row does not beat a shared row, and a row for this year does not beat a blank-year row. Keep exactly one matching row per code.
4. Checks the regime. In the Old regime, the claim counts only if Allowed In Old Regime is on. In the New regime, it counts only if Allowed In New Regime is on. A blank switch refuses the claim.
5. Checks the employer rule. If Employer May Allow is off, the claim counts for nothing in either regime. The employee claims it in their own return instead.
6. Caps each line at the section ceiling. Each line is limited to Max Amount on its own. A blank Max Amount means no limit.
7. Applies shared ceilings. The allowed claims of all sections with the same Aggregate Cap Group are limited together to the group's Aggregate Cap Amount. The ceiling is filled in Sort Order, then section-code order. The section that comes last is the one that is cut.
8. Reduces taxable income. The total of the allowed claims is taken off income under each regime. It can bring income down to zero, but never below.

Both regimes are computed from the same claims, so the projection shows what the claims are worth under each regime. The employee's Tax Regime on the Employee record decides which one is deducted.

Prerequisites

• The deduction rules from the current Finance Act: each section's ceiling, the regimes that allow it, and the shared ceilings.
• The section codes your payroll team types on declaration lines. Agree one spelling per section, such as 80CCD(1B).
• Your profile can open the Payroll Settings area and create Tax Deduction Section records (see Permissions).
• Decide whether all your companies share one set of sections (the usual case) or a company needs its own.

Procedure

Step 1 — Open the section list

Open the App Launcher, search for Payroll and select the app. Choose Settings, then under Salary Tax (TDS) choose Tax Deduction Section. The All Tax Deduction Section view lists each section with its Name, Partner Account, Section Code, Section Code (2025 Act), Max Amount, Senior Max Amount, Allowed In Old Regime, Allowed In New Regime and Created On.

Step 2 — Create a section

Select New. The form has five fields at the top and four tabs below them.

At the top:

• Name: required. There is no numbering series, so use something you can recognise, for example 80D-HEALTH.
• Label: optional display text, for example Health insurance premium.
• Section Code: the code declaration lines use, such as 80D. This is the field that matters. Type it exactly as your team types it on declaration lines, without extra spaces.
• Section Code (2025 Act): optional. The matching number under the Income-tax Act, 2025, such as 126 for 80D. It is for reference only.
• Financial Year: leave it blank for a section whose rules do not change from year to year. Fill it in, as 2026-27, only for a row that applies to that year alone. Any other spelling, such as 2026-2027, saves without complaint but never matches.

On the Limits tab:

• Aggregate Cap Group: leave blank unless the section shares a combined ceiling. For 80C, 80CCC and 80CCD(1), type 80CCE on each of the three.
• Aggregate Cap Amount: the combined ceiling, for example 150000 for 80CCE. Enter the same figure on every member of the group.
• Max Amount: the section's own ceiling. Leave it blank only for a section that has no limit, such as 80E.
• Senior Max Amount: enter it if you like, but salary TDS does not use it (see Business rules).

On the Regime Availability tab:

• Allowed In Old Regime: turn it on for every section the Old regime allows.
• Allowed In New Regime: turn it on only for the few sections the New regime keeps.
• Employer May Allow: turn it on unless the employer must not give the deduction against salary TDS. Turn it off for 80G, which employees claim in their own return.

Set each switch on purpose. A blank Allowed In Old Regime or Allowed In New Regime refuses the claim.

On the Evidence tab:

• Requires Proof and Evidence Kind: a note for the person who checks declarations, such as premium receipt. Nothing checks them. Proof control comes from the declaration status: only Verified or Approved declarations count.
• Sort Order: the order of the section in the list, and the order in which a shared ceiling is filled (see Step 4).

On the Scope tab:

• Is Active: make sure it is on.
• Partner Account: leave blank for a section every company shares. Choose a company only for a row that applies to that company alone. On a tenant with only one company the field is hidden.

Select Save. The section opens on its record page. Its header shows the Section Code, Section Code (2025 Act), Max Amount, Allowed In Old Regime, Allowed In New Regime and Is Active. Check them, and check the Partner Account column in the list (see Business rules).

Step 3 — Create the rest of your sections

Repeat Step 2 for every code your employees declare. Compare the list's Section Code column with the codes on your declaration lines: any code without a section counts for nothing.

Step 4 — Set up a shared ceiling

For sections that share one combined ceiling, such as 80C, 80CCC and 80CCD(1) under 80CCE:

1. Give each member the same Aggregate Cap Group (80CCE) and the same Aggregate Cap Amount (150000).
2. Give each member its own Max Amount as the law sets it.
3. Set Sort Order to the order in which the ceiling should be used up, for example 1 for 80C, 2 for 80CCC and 3 for 80CCD(1).

When an employee's claims under the group add up to more than the ceiling, the members are filled in Sort Order until the ceiling is reached. The member that comes last is cut down or gets nothing. The total allowed is the same whatever the order.

Step 5 — Check that a section is used

Pick a test employee with a Verified declaration line for the section. Run Project TDS (or Calculate) on an unposted payroll run of the year, then open the employee's Monthly TDS Projection. Taxable Income If Old should be lower than it is without the claim, by the allowed amount and allowing for the rounding unit. See Monthly TDS projections for reading the record.

Step 6 — Change a section

Open the section and select Edit in the header, or use the row's Edit action in the list. The same form as New opens. Change the figures and select Save. The record page itself does not edit in place.

A change affects only computations made afterwards. Run Project TDS or Calculate again on any unposted run of the year. A posted run keeps the TDS it was calculated with, and the next month's projection spreads any difference over the remaining months of the year.

If a ceiling changes from one year to the next, give the old row the old year and create a new row with the new year. Do not leave a blank-year row next to a row for the same code and year, because then you cannot tell which one is used.

Step 7 — Retire or remove a section

• To retire a section, untick Is Active. Declaration lines with its code then count for nothing.
• To remove a section, delete it from the list (row action Delete, or select rows and use Delete in the selection bar). Declarations are matched by code, not linked to the row, so they are not changed. Their lines simply stop counting.

Fields

Business rules

• Matching is by code only. A declaration line is matched to a section by Section Code, ignoring capital and small letters. Section Code (2025 Act), Name and Label are never used to match.
• Unknown codes vanish quietly. A line whose code matches no active section for the year and company is left out. Nothing warns you, and the employee's TDS is simply higher.
• One row per code, year and company. If several rows match one code, one of them is used and you cannot tell which. A company row does not beat a shared row, and a row for the year does not beat a blank-year row. This is different from a Tax Regime Rule, where the company rule wins.
• Blank year means every year. A row with no Financial Year matches every year, so a section whose rules do not change needs only one row.
• Each line is capped on its own. Max Amount is applied to each declaration line separately. Two lines for the same section, on one declaration or two, can together go over the section ceiling. Record one line per section. A shared ceiling still limits its group as a whole.
• Order of checks. Regime first, then the employer rule, then the section ceiling, then the shared ceiling. A claim refused by the regime or the employer rule counts for nothing and takes no share of a shared ceiling.
• Shared ceilings are filled in order. Within a group, claims are allowed in Sort Order (then section code) until the ceiling is used up. The lowest Aggregate Cap Amount among the claimed members is the ceiling.
• Total never below zero. The allowed claims can bring taxable income down to zero, but never below.
• What is not used today. Salary TDS never marks a claim as being for a senior citizen, so Senior Max Amount has no effect. Requires Proof and Evidence Kind are reference only. The Allows Chapter VI-A Deductions switch on a Tax Regime Rule does not decide which claims count; the section switches do.
• No validation. xMatix does not check that codes are unique, that the year is well formed, or that group members carry the same ceiling. Review the list after every change.
• A blank Partner Account may not stay blank. If the user who creates a section has a default company in Company Access, a blank Partner Account is filled with that company on save. The section then applies to that company only, and other companies' declarations under that code count for nothing. Check the Partner Account column after saving. To create shared sections, use an account that has no default company.
• Where it is used. Sections feed the Monthly TDS Projection, and through it the TDS deduction in the payroll run, and the employee rows of the Q4 salary TDS return.

Example

A payroll administrator sets up the sections for all companies, signed in with an account that has no default company. They leave Financial Year blank on every row, because the limits are the same this year:

An engineer on the Old regime has a Verified declaration for 2026-27 with five lines:

1. 80C, 1,20,000: within its own ceiling, so 1,20,000 counts toward 80CCE.
2. 80CCC, 60,000: within its own ceiling, but only 30,000 of the 80CCE ceiling is left after 80C, so 30,000 is allowed.
3. 80CCD(1B), 50,000: not in a group, within its ceiling, so 50,000 is allowed.
4. 80D, 30,000: capped at 25,000.
5. 80G, 10,000: Employer May Allow is off, so nothing is allowed. The engineer claims it in their own return.

The total allowed under the Old regime is 1,50,000 + 50,000 + 25,000 = 2,25,000, and Taxable Income If Old is that much lower, after rounding. Under the New regime nothing is allowed, because no section is allowed in the New regime, so Taxable Income If New does not change. If the administrator swapped the Sort Order of 80C and 80CCC, 80CCC would get its full 60,000 and 80C would get 90,000. The total would still be 1,50,000.

Training

Practice exercise

In a sandbox with a full set of salary tax rules for the current year, an unposted payroll run of that year and a test employee on the Old regime:

1. Create a section with Section Code 80D, Max Amount 25,000, Allowed In Old Regime on, Employer May Allow on and Is Active on.
2. Give the test employee a declaration for the current year with one 80D line of 40,000 and set its Status to Verified.
3. Run Project TDS on the run and note Taxable Income If Old on the employee's Monthly TDS Projection.
4. Edit the section, turn Allowed In Old Regime off, save and run Project TDS again.
5. Turn it back on, change the line's Section Code to 80-D, and run Project TDS again.

Expected result: in step 3, Taxable Income If Old is 25,000 lower than without the declaration (allowing for rounding), because the claim is capped. After step 4 the claim counts for nothing, so the figure rises by 25,000. After step 5 it is still 25,000 higher, because 80-D matches no section. Correct the line's code afterwards.

Quick reference

• Path: Payroll → Settings → Salary Tax (TDS) → Tax Deduction Section.
• Declaration lines match on Section Code, ignoring capital and small letters.
• An unknown or inactive code counts for nothing, without a warning.
• Keep one active row per code, year and company.
• Blank Financial Year means every year.
• Turn the regime switches on deliberately: blank refuses the claim.
• Employer May Allow off refuses the claim in both regimes.
• Shared ceilings: same group name and amount on every member; Sort Order decides who is cut.
• Max Amount applies per line, so record one line per section.
• Re-run Project TDS or Calculate on unposted runs after a change.

Permissions

Access follows the Tax Deduction Section entity permissions in each security profile:

• See, create, edit and delete. These need read, create, edit and delete on Tax Deduction Section. The seeded System Admin, Standard User and Sales Executive profiles have full access, including the Edit and Delete actions.
• Reach the list. The sections are in the Payroll Settings area. Of the seeded profiles, only System Admin has that settings app, so other users find the sections only through the App Launcher search, if their profile can read the entity.

The sections decide how much of every declaration lowers TDS, so restrict create, edit and delete to payroll administrators in your own profiles.

Configuration

Common problems

A verified declaration does not lower TDS

Check, in this order: the line's Section Code has an active section with exactly the same code; the section's Financial Year is blank or the payroll year; its Partner Account is blank or the payroll company; the section is allowed in the employee's regime; and Employer May Allow is not off. Also check that the employee's regime is the one you expect: most sections are not allowed in the New regime, which is the default. Then run Project TDS again.

Declarations count for one company but not another

The section was saved with a company in Partner Account, usually because the creating user's default company filled it in. Clear Partner Account through Edit, or create the missing company's own row and make sure no shared row exists for the same code.

More than the section ceiling is allowed

The employee has more than one line for the section, on one declaration or across two Verified declarations, and each line is capped on its own. Merge them into one line. For sections in a shared group, the group ceiling still applies.

80C and 80CCC together are allowed more than 1,50,000

The members do not share the same Aggregate Cap Group, or none of them has an Aggregate Cap Amount. Give each member 80CCE and 150000, and run Project TDS again.

The wrong section is cut when a shared ceiling is reached

The ceiling is filled in Sort Order. Give the section that should be used first the lowest Sort Order. Rows without a Sort Order come last.

A changed ceiling is ignored

Another row for the same code still matches, for example a blank-year row next to a row for the year, or a shared row next to a company row. One of them is used and you cannot tell which. Untick Is Active or delete the row you don't want.

The senior-citizen ceiling is never applied

Salary TDS does not know which claims are for senior citizens, so it always uses Max Amount, and there is no setting that changes this. Do not raise Max Amount to make room: that would raise the ceiling for every employee. The employee claims the difference in their own return.

Common questions

Do I need a separate row for each financial year?

No. A row with a blank Financial Year applies to every year, which suits sections whose limits have not changed. When a limit changes, put the old year on the existing row and create a new row with the new year and the new figures. Never keep a blank-year row and a row for the same year side by side for one code: both match, and you cannot tell which one is used. Review the list before the first April run.

Does a company-specific section override a shared one?

No. Unlike a Tax Regime Rule, where the company rule wins, a company section and a shared section with the same code both match the company's employees, and one of them is used without telling you which. If one company needs different figures, give that company its own row and give every other company its own row too, with no shared row for that code. Check the Partner Account column after saving, because a default company can fill it in.

Why is 80G not allowed even though the employee paid the donation?

If Employer May Allow is off on the 80G section, salary TDS does not give the deduction in either regime. This follows the standing position that the employer does not allow most 80G donations against salary TDS; the employee claims them in their own return. Turn the switch on only for a section the employer may allow, and keep the declaration line so the record stays complete.

Do I have to fill in Section Code (2025 Act)?

No. It is a reference field that lets you record the new section number next to the familiar one, such as 123 for 80C. Declaration lines are always matched on Section Code, so keep declarations using the same codes as the Section Code column, whichever Act your team prefers to quote.

Related topics

• Income tax on salary
• Tax declarations
• Tax regime rules
• Salary tax slabs
• Tax surcharge slabs
• Monthly TDS projections
• TDS returns
• Tax Deduction Section reference