Tax regime rules

A tax regime rule holds the income-tax parameters of one regime for one financial year that are not slab bands: the standard deduction, the rebate and its marginal relief, the highest surcharge rate, the cess rate and the rounding unit. Salary TDS cannot be worked out without it. Every time xMatix projects an employee's salary tax, it first looks up the Tax Regime Rule for the regime and year. If it finds none, it computes nothing. The rule is then applied around the salary tax slabs and surcharge slabs to give the annual tax. That annual tax drives the monthly TDS deduction in the payroll run and the annual salary rows of the TDS return.

Overview

You keep exactly one Tax Regime Rule per regime per financial year: one for the Old regime and one for the New regime of 2026-27, two more for 2027-28, and so on. Each rule holds:

• Identification: a Name, an optional Label, the Regime (Old Regime or New Regime) and the Financial Year.
• Deduction & Rebate: the Standard Deduction, the Rebate Income Ceiling, the Rebate Max Amount and the Rebate Marginal Relief Enabled switch.
• Surcharge & Cess: the Surcharge Max Rate, the Special Rate Surcharge Cap, the Cess Rate and the Rounding Unit.
• Regime Allowances: Allows Chapter VI-A Deductions, Allows House Property Loss Set-Off and the House Property Loss Set-Off Cap.
• Scope: Is Active and, optionally, the company the rule belongs to (Partner Account).

No rules are supplied with the product. You type in the figures from the current Finance Act for each regime and year. They are kept as data, not built in, because they change with the Budget.

When to use it

• Before the first payroll run of a financial year. Create the year's rule for both regimes, together with that year's slabs and surcharge bands.
• When the Budget changes the standard deduction, the rebate, the surcharge cap or the cess.
• When Calculate is refused with "Payroll can't compute salary TDS for tax year …", or the TDS return warns that annual salary rows are not computed. A missing, inactive or mistyped rule is the most common cause.

How xMatix handles it

The rule is used wherever xMatix computes salary tax:

• the monthly TDS projection, run by Project TDS and by Calculate on a payroll run;
• the employee rows of a Q4 salary TDS return.

Each time, xMatix:

1. Works out the financial year from the payroll period's end date. Years start on 1 April, so a period ending 31 July 2026 belongs to 2026-27.
2. Finds the rule. It looks for a rule that is not deleted, whose Is Active is not unticked, whose Regime is the regime being computed and whose Financial Year is exactly the year being computed. The rule's Partner Account must be the payroll company or blank. If both a company rule and a shared rule (blank Partner Account) exist, the company rule is used.
3. Stops if there is no rule.
   • The TDS projection always computes both regimes so that it can compare them. It needs a rule for the Old and the New regime. If either is missing, the employee is skipped and no new projection is written.
   • The TDS return needs a rule only for the employee's own regime. Without one, the row is written with the payroll figures but no tax.
4. Works out the taxable income. It takes the projected salary, subtracts the Standard Deduction (in both regimes) and the allowed declaration claims, and rounds the result to the Rounding Unit.
5. Computes the slab tax from the salary tax slabs for the regime and year.
6. Takes off the rebate. If the taxable income is at or below the Rebate Income Ceiling, the rebate is the slab tax up to the Rebate Max Amount. A rupee above the ceiling and there is no rebate at all.
7. Applies the rebate's marginal relief, if Rebate Marginal Relief Enabled is on. Just above the ceiling, the tax is cut so that it is no more than the income above the ceiling.
8. Adds the surcharge from the surcharge slabs, with a band's rate capped at the Surcharge Max Rate, and takes off the surcharge marginal relief.
9. Adds cess at the Cess Rate on the tax after rebate plus the surcharge.
10. Rounds the final tax to the Rounding Unit.

Prerequisites

• The parameters for each regime and year, from the current Finance Act.
• Your profile can open the Payroll Settings area and create Tax Regime Rule records (see Permissions).
• Ideally, decide first whether all your companies share one set of rules (the usual case) or whether a company needs its own.

Procedure

Step 1 — Open the rule list

Open the App Launcher, search for Payroll and select the app. Choose Settings, then under Salary Tax (TDS) choose Tax Regime Rule. The All Tax Regime Rule view lists every rule with its Name, Partner Account, Regime, Financial Year, Standard Deduction, Cess Rate and Is Active.

Step 2 — Create the rule for one regime and year

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

At the top:

• Name: required. There is no numbering series, so put the regime and year in it, for example NEW-2026-27.
• Label: optional display text.
• Regime: choose Old Regime or New Regime. The form starts on New Regime.
• Financial Year: type the year exactly as 2026-27. Any other spelling, such as 2026-2027 or FY 2026-27, saves without complaint, but the rule is never found.

On the Deduction & Rebate tab:

• Standard Deduction: the flat deduction from salary for the regime.
• Rebate Income Ceiling and Rebate Max Amount: the income limit and the largest rebate. Leave both blank for a regime with no rebate.
• Rebate Marginal Relief Enabled: turn it on for a regime whose law caps the tax just above the rebate ceiling (the New regime).

On the Surcharge & Cess tab:

• Surcharge Max Rate: the highest surcharge rate the regime allows, as a plain number (25 for 25 percent).
• Special Rate Surcharge Cap: enter the statutory figure if you like, but it has no effect on salary TDS today (see Business rules).
• Cess Rate: as a plain number, 4 for 4 percent.
• Rounding Unit: the amount to round taxable income and tax to, normally 10.

The rate boxes may show a currency sign. Ignore it and type the plain number.

On the Regime Allowances tab:

• Allows Chapter VI-A Deductions: on for the Old regime, off for the New. Which deductions count is decided by each deduction section, not by this switch.
• Allows House Property Loss Set-Off and House Property Loss Set-Off Cap: fill in for completeness. Salary TDS does not use them today.

On the Scope tab:

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

Select Save. The rule opens on its record page. Its header shows the Regime, Financial Year, Standard Deduction, Rebate Max Amount, Cess Rate and Is Active.

Step 3 — Create the rule for the other regime

Repeat Step 2 for the other regime of the same year. The TDS projection needs both. With only one, no employee gets a projection, whichever regime they have chosen.

Step 4 — Check that the rule is used

Run Project TDS (or Calculate) on an unposted payroll run of the year, then open an employee's Monthly TDS Projection. Tax If Old Regime and Tax If New Regime are both filled in when both rules were found. See Monthly TDS projections for reading the record.

Step 5 — Change a rule

Open the rule 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.

Step 6 — Retire or remove a rule

• To retire a rule, untick Is Active. Only do this when another rule for the same regime and year replaces it. Otherwise nothing is projected for that year.
• To remove a rule, delete it from the list (row action Delete, or select rows and use Delete in the selection bar).

Step 7 — Set up the next financial year

A rule matches its own Financial Year only. Unlike a slab, a rule with a blank year never applies. Before the first April run, create the new year's rule for both regimes, even if no figure has changed. The standard screens have no copy action, so create each rule as a new record.

Fields

Business rules

• One rule per regime, year and company. xMatix uses a single rule. A company rule beats a shared rule. If two rules match equally (for example, two shared New regime rules for 2026-27), one of them is used and you cannot tell which. Keep exactly one.
• Company rules replace, slabs add up. A company's Tax Regime Rule replaces the shared one. Salary tax slabs and surcharge slabs do not work this way: shared and company bands are added together.
• Exact matching, no wildcards. Regime and Financial Year must match exactly. A blank year does not mean "every year", unlike on a slab.
• No validation. xMatix does not check that the year is well formed, that the figures are sensible, or that only one rule exists. Review the list after every change.
• A blank Partner Account may not stay blank. If the user who creates a rule has a default company in Company Access, a blank Partner Account is filled with that company on save, and the rule then applies to that company only. Other companies then have no rule. Check the Partner Account column after saving. To create shared rules, use an account that has no default company.
• Both regimes are always needed for projection. The projection computes the Old and the New regime for every employee so that it can recommend the cheaper one. If either rule is missing, it writes nothing. An older projection for the same period, if any, stays and is still used.
• The rebate is a cliff. At or below the ceiling, the rebate is the slab tax up to the maximum. Above the ceiling there is no rebate, and only the marginal relief, if switched on, softens the jump.
• Marginal relief comes before surcharge and cess. The capped tax is then increased by cess, so the final tax just above the ceiling is the income above the ceiling plus cess.
• The surcharge cap applies to every band. Surcharge Max Rate limits the rate of whichever surcharge band applies. This lets the New regime share bands with the Old regime and still stop at its lower top rate.
• What is not used today. Salary TDS has no special-rate income (dividends, capital gains) and no house-property income. So Special Rate Surcharge Cap, Allows House Property Loss Set-Off and House Property Loss Set-Off Cap make no difference. Allows Chapter VI-A Deductions changes only the reason text on a refused claim.
• Where it is used. The rule feeds 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 prepares 2026-27. All companies share one set of rules, so they sign in with an account that has no default company. They take the figures from the Finance Act and create two shared rules:

The New regime slabs are the ones in the salary tax slabs example: 0 percent up to 4,00,000, then 5, 10 and 15 percent on each further 4,00,000.

An analyst on the New regime has a projected annual salary of 12,85,000 and no declarations:

1. Taxable income: 12,85,000 − 75,000 = 12,10,000.
2. Slab tax: 20,000 + 40,000 + 15 percent of 10,000 = 61,500.
3. Rebate: none, because 12,10,000 is above the ceiling of 12,00,000.
4. Marginal relief: the tax may not exceed the 10,000 above the ceiling, so 51,500 is taken off and the tax is 10,000.
5. Cess: 4 percent of 10,000 = 400. The annual tax is 10,400.

Without marginal relief, the same analyst would pay 61,500 plus 2,460 cess, which is 63,960. A colleague with a projected salary of 12,75,000 has a taxable income of exactly 12,00,000. Their slab tax of 60,000 is fully covered by the rebate, so they pay nothing.

Training

Practice exercise

In a sandbox with New regime slabs for the current year, an unposted payroll run of that year and a test employee on the New regime:

1. Create only the New regime rule from the example, for the current year.
2. Run Project TDS on the run. Check the test employee: no new projection is written.
3. Create the Old regime rule from the example for the same year and run Project TDS again.
4. Open the employee's Monthly TDS Projection and note Tax If New Regime.
5. Edit the New regime rule, turn Rebate Marginal Relief Enabled off, save and run Project TDS again.

Expected result: step 2 writes nothing, because the Old regime rule is missing. After step 3 both tax figures are filled in. After step 5, Tax If New Regime rises for any employee whose taxable income is just above the rebate ceiling, and stays the same for everyone else. Turn the switch back on afterwards.

Quick reference

• Path: Payroll → Settings → Salary Tax (TDS) → Tax Regime Rule.
• One rule per regime per financial year, written exactly as 2026-27.
• Both regimes need a rule, or Project TDS and Calculate refuse the run.
• A blank Financial Year never matches.
• Rates are plain numbers: 4 = 4 percent.
• A company rule replaces the shared rule; slabs add up instead.
• Check Partner Account after saving: a default company can fill it in.
• Re-run Project TDS or Calculate on unposted runs after a change.

Permissions

Access follows the Tax Regime Rule entity permissions in each security profile:

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

The rules decide the tax deducted from every employee, so restrict create, edit and delete to payroll administrators in your own profiles.

Configuration

Common problems

TDS is zero for everyone in a new year

The year has no rule for one or both regimes, or the rules have a different Financial Year text, are inactive, or belong to another company. Open the list, filter on the year and check for one active rule per regime, with the year written exactly as 2026-27. Then run Project TDS or Calculate again. If an employee still has a TDS deduction, it comes from an older projection for the period or from the TDS line's own value (see Monthly TDS projections).

The TDS return warns "Annexure Not Computed"

The Q4 salary return found no rule for the employee's regime and year. Add or activate the rule, check its Financial Year and Partner Account, and compute the return again.

One company gets no TDS while the others do

That company's employees found no rule. Either the shared rule was saved with a company in Partner Account (your default company filled it in), or the company has a rule for only one regime. Clear Partner Account on the shared rule through Edit, or create the company's missing rule.

A company's figures are ignored

A shared rule is still being used because the company's rule is inactive, has a different year text or a different regime. Correct the company rule. When it matches, it replaces the shared one.

Employees just above the rebate limit pay a full slab tax

Rebate Marginal Relief Enabled is off on the rule. Turn it on for a regime whose law provides the relief and run Project TDS again.

The cess or the rounding looks wrong

Check Cess Rate and Rounding Unit. A Cess Rate of 0.04 charges a tiny fraction of the cess; type 4. A blank Rounding Unit leaves paise on the tax.

Surcharge is lower than the band rate

The band's rate is above the rule's Surcharge Max Rate, so the cap was used. Correct the cap if it is wrong for the regime.

Common questions

Do I need a rule for a regime nobody has chosen?

Yes. The projection computes both regimes for every employee so that it can show the comparison and recommend the cheaper one. If either regime's rule is missing for the year, Calculate refuses the whole run, whichever regime each employee is on. Create both rules every year, even if all your employees are on the New regime. The TDS return is the only place that needs just the employee's own regime, but the monthly deduction depends on the projection.

Can one company have different figures?

Yes. Create a rule with that company in Partner Account for the regime and year. For that company it replaces the shared rule, and every other company keeps using the shared rule. Create the company's rule for both regimes if both differ; for a regime where it has no rule, the shared one applies. Slabs and surcharge bands work differently: a company's bands are added to the shared ones, so give that company its own complete set and no shared bands.

Does turning off Allows Chapter VI-A Deductions block declarations?

No. Which declared deductions count is decided section by section on the Tax Deduction Section records, by Allowed In Old Regime and Allowed In New Regime. The switch on the rule only changes the reason text shown for a refused claim. To stop a deduction counting under a regime, untick that regime on the section.

Does changing a rule change TDS already deducted?

No. A posted run keeps its TDS. The next projection uses the new figures for the whole year's tax and spreads the difference over the remaining months. Run Project TDS or Calculate again on any unposted run so that it uses the new figures.

Related topics

• Income tax on salary
• Salary tax slabs
• Tax surcharge slabs
• Tax declarations
• Monthly TDS projections
• TDS returns
• Tax Regime Rule reference