TDS on Salary (Section 192): Employer’s 2026 Guide
Section 192 of the Income-tax Act, 1961 requires every employer paying taxable salary to deduct income tax at source before releasing pay to the employee. Unlike most TDS provisions that apply a flat rate, Section 192 obliges the employer to estimate each employee’s annual tax liability and spread it across the financial year. This article explains how employers compute, deduct and deposit salary TDS in 2026, the interaction between the old and new tax regimes, and the compliance documents every payroll team must handle.
What Section 192 requires
The obligation to deduct arises only at the time of actual payment of salary, not when it accrues. The employer must estimate the employee’s total salary income for the financial year, arrive at the tax payable on it under the applicable regime, and deduct that tax in roughly equal monthly instalments. Because the deduction is based on the individual employee’s projected income and chosen regime rather than a fixed percentage, no single statutory rate applies — the effective rate varies from employee to employee.
Where an employee has been employed by more than one employer during the year, or has other income, the employee may furnish those details so the deducting employer can factor them in. The employee may also report eligible losses, such as loss from house property, which the employer can consider while estimating tax.
How the average rate is computed
The mechanism prescribed under Section 192 is the “average rate of income tax”. In practice, payroll teams follow these steps:
- Estimate gross annual salary — basic pay, allowances, perquisites and any bonus expected during the year.
- Apply the exemptions and deductions permitted under the employee’s chosen regime, and reduce the standard deduction available to salaried taxpayers.
- Arrive at estimated taxable income and compute the annual tax liability using the applicable slab rates, adding the Health and Education Cess and any surcharge.
- Divide the estimated annual tax by the number of months remaining in the financial year to fix the monthly TDS.
The estimate is revisited whenever salary changes materially — a mid-year increment, a bonus, or a fresh investment declaration — and the monthly deduction is adjusted for the balance of the year so that the correct total tax is recovered by March.
Old regime versus new regime
Since FY 2023-24, the new tax regime under Section 115BAC is the default. If an employee does not communicate a preference, the employer must compute TDS under the new regime. An employee who wishes to be taxed under the old regime must expressly opt out and inform the employer, ideally at the start of the year.
For FY 2025-26 (assessment year 2026-27), the new regime slabs are broadly as follows: no tax up to Rs. 4 lakh; 5% on Rs. 4-8 lakh; 10% on Rs. 8-12 lakh; 15% on Rs. 12-16 lakh; 20% on Rs. 16-20 lakh; 25% on Rs. 20-24 lakh; and 30% above Rs. 24 lakh. Salaried employees receive a standard deduction of Rs. 75,000 under the new regime, and the enhanced rebate under Section 87A can make tax liability nil for those with taxable income up to Rs. 12 lakh. The old regime retains its earlier slab structure, a Rs. 50,000 standard deduction and the wide range of deductions such as those under Chapter VI-A and house rent allowance.
The practical difference for payroll is that the new regime largely disregards most investment-linked deductions, so estimating tax is simpler, whereas the old regime requires the employer to collect and verify proofs before allowing deductions.
Employee declarations and Form 12BB
To claim deductions and exemptions that reduce monthly TDS, employees must declare them to the employer. The prescribed statement for this purpose is Form 12BB, in which the employee reports claims for house rent allowance, leave travel concession, interest on a housing loan, and deductions under Chapter VI-A, along with supporting evidence.
- At the start of the year employees usually submit a provisional declaration of intended investments so that TDS can be estimated accordingly.
- Towards the end of the year, typically between January and March, they submit actual proofs.
- If proofs fall short of the declaration, the employer recomputes tax and recovers the shortfall in the remaining months.
Keeping TDS compliance accurate depends heavily on collecting these declarations on time and verifying them before allowing any deduction, since the employer is responsible for the correctness of the tax deducted.
Depositing the tax and filing returns
Tax deducted from salary must be deposited with the government using the employer’s Tax Deduction and Collection Account Number (TAN). The general due date is the 7th of the month following the month of deduction; for tax deducted in March, the extended due date is 30 April. Deposits are made through the prescribed challan on the income tax portal.
Employers must also file a quarterly TDS return in Form 24Q, reporting salary paid and tax deducted for each employee. The return for the last quarter additionally carries the annexure with full salary details and deductions considered for the year. Filing accurate quarterly returns is what allows the deducted tax to be reflected against each employee’s Permanent Account Number in Form 26AS and the annual information statement.
Form 16 — the annual TDS certificate
After the year closes, the employer must issue Form 16 to every employee from whose salary tax was deducted. Form 16 has two parts: Part A, generated from the TRACES portal, shows the tax deducted and deposited quarter by quarter; Part B is a statement of the salary paid, exemptions, deductions and the tax computed. Form 16 must be issued by 15 June following the end of the financial year, meaning that for FY 2025-26 the certificate is due by 15 June 2026. Employees use Form 16 to prepare and file their own income tax returns.
Consequences of default
Failure to deduct, or to deposit tax after deducting, attracts interest under Section 201 — generally 1% per month for failure to deduct and 1.5% per month where tax is deducted but not paid. Late filing of Form 24Q draws a fee under Section 234E, and delayed issuance of Form 16 can invite a penalty. Prompt and accurate compliance therefore protects both the organisation and its employees.
Frequently asked questions
Is TDS deducted on salary every month?
Yes. The employer estimates the annual tax and deducts it in monthly instalments through the year, rather than at year-end, so the total tax is recovered evenly by March.
What happens if an employee does not choose a tax regime?
The new tax regime is the default. If the employee does not opt out, the employer must compute and deduct TDS under the new regime for that year.
Can an employer allow deductions without proof?
An employer should allow deductions only on the basis of a declaration in Form 12BB supported by evidence. Where proofs are not furnished, the deduction should be withdrawn and TDS recomputed.
By when must Form 16 be issued?
Form 16 must be issued by 15 June following the end of the financial year. For FY 2025-26 the due date is 15 June 2026.
What is the due date to deposit salary TDS?
Tax deducted must be deposited by the 7th of the following month, except for tax deducted in March, which may be deposited up to 30 April.
If managing monthly salary estimates, regime elections, investment proofs and quarterly returns is stretching your team, TAXAJ can handle end-to-end payroll processing and salary TDS compliance so your filings and Form 16 issuance stay accurate and on time. Reach out to us to simplify your payroll tax workflow.
