TDS on Salary

Employers are responsible for deducting tax at source (TDS) on the salaries they pay, based on each employee's projected annual income and chosen tax regime (old vs new). That TDS must be deposited with the government every month, reported quarterly, and certified to employees annually in a certificate they use to file their own returns.

Which law applies turns on the year, and the year framing is where most guidance goes wrong. The Income-tax Act, 2025 commenced on 1 April 2026, so it governs FY / tax year 2026-27, which is assessment year 2027-28. Assessment year 2026-27 is FY 2025-26 and remains under the Income-tax Act, 1961. In practical terms: March 2026 salary paid on 31 March 2026 falls under the 1961 Act; April 2026 payments onward fall under the 2025 Act. The Income Tax Department's own TDS compliance guidance states it directly — for salary pertaining to tax year 2026-27, paid from April 2026 onwards, TDS obligations are in accordance with section 392(1) of the new Act.

Section 392, not 393 or 394. Section 392(1) requires any person responsible for paying income chargeable under the head "Salaries" to deduct income-tax on the amount payable, at the time of payment, at the average rate of income-tax computed on the rates in force for the tax year, on the estimated income of the assessee under that head for the year. Section 393 covers payments other than salary and section 394 covers TCS — a distinction worth getting right before anyone maps a chart of accounts to a section number.

The form numbers changed, and competitor content has not caught up. Under the Income-tax Rules, 2026 (G.S.R. 198(E), 20 March 2026, in force 1 April 2026): the quarterly salary-TDS statement is Form 138 under rule 219(1), where it once was Form 24Q; the annual salary TDS certificate is Form 130 under rule 215(1), where it was Form 16; the perquisite statement is Form 123 under rule 204(2) where salary exceeds ₹1,50,000, and the relevant columns of Form 130 where salary is ₹1,50,000 or less, replacing Form 12BA; and the employee's evidence of claims is Form 124 under rule 205, replacing Form 12BB. The resident non-salary statement is Form 140, the non-resident statement Form 144 and the TCS statement Form 143. Say both names for a while — Form 24Q and Form 16 remain correct for FY 2025-26 and earlier, and both will keep appearing in software and in employees' questions.

Three details in section 392 that change what an employer may and may not do. Section 392(2)(a) lets the employer opt to pay the tax on a non-monetary perquisite itself, rather than deducting it from the employee. Section 392(4)(a) requires the employer to take into account particulars the employee furnishes — salary from another employer, section 157 relief, loss under "Income from house property", other-head income, and TDS or TCS already suffered. And section 392(4)(b) is the limit most payroll teams need: the tax deductible from salary may be reduced only for a house-property loss and for tax already deducted or collected. An employer may not reduce salary TDS for an employee's capital loss or business loss, however genuine.

Form 130 cannot be hand-made. Rule 215(7) requires the certificate to be generated and downloaded from the portal specified under rule 332. Rule 215(2) deals with the common case of an employee with more than one employer in the year: each employer issues Part A and Part B for its own period, and Part C may be issued by each employer or by the last employer at the employee's option. Duplicates are allowed on request (215(3)), digital signatures are permitted (215(4)) with a control number and a log (215(5)).

What Form 124 has to be backed by. Rule 205(2) lists the evidence for four claims: house rent allowance — landlord name, address, and PAN where the aggregate rent in the tax year exceeds ₹1,00,000, plus any relationship; leave travel concession — evidence of the expenditure; house-property interest — lender name, address and PAN; and Chapter VIII deductions — evidence of the investment or expenditure. Collect these before the deduction is computed, not in March.

Salary TDS is one of the trickier payroll pieces: it depends on declarations, investment proofs, exemptions and the regime each employee picks, and it must reconcile across the quarterly statement, the annual certificate and the employee's tax credit statement. Errors mean mismatches and unhappy employees at filing time.

We compute salary TDS correctly each month, file your quarterly statement and issue the annual certificate — reconciled and reviewed — so your salary TDS is clean for you and your team. (You need a TAN; we can arrange it via our Registrations/Income-Tax verticals.) The payroll compliance guide sets the whole cycle out month by month.