TDS on Salary Under Section 392 of the Income Tax Act, 2025 — Complete Guide for Employers & Employees

TDS on Salary Under Section 392 of the Income Tax Act, 2025

Every salaried employee has seen the deduction line on their payslip marked “TDS.” From 1st April 2026, the legal basis for that deduction changed: Section 192 of the Income Tax Act, 1961 has been replaced by Section 392 of the Income Tax Act, 2025. The mechanics employers and employees are used to remain intact — but the section number, the forms, and a few procedural details are new. This guide walks through exactly how salary TDS works under the new Act for Tax Year 2026-27.

What Section 392 Covers

Section 392 consolidates what used to be two separate provisions — Section 192 (salary TDS) and Section 192A (TDS on premature EPF withdrawal) — into a single section with eight sub-sections. It covers:

•             TDS on regular salary, wages, pension, and any sum chargeable under the head “Salaries”

•             TDS on ESOP/perquisite income when a company allots or transfers shares to an employee

•             TDS on accumulated provident fund balance withdrawn before 5 years of continuous service (10%, 20% without PAN, above a ₹50,000 threshold)

•             The employer’s statutory obligations — furnishing statements, considering prescribed claims, and adjusting for previous excess/short deduction

There is no fixed TDS rate on salary. Instead, the employer estimates the employee’s total annual taxable income, computes tax on it using the applicable slab rates, and deducts that amount proportionately (as the “average rate of tax”) from each month’s salary payment.

New Tax Regime vs Old Tax Regime — The Default Has Changed

The new tax regime is the default for TDS computation under Section 392, read with Section 202 of the new Act. If an employee doesn’t declare a preference, the employer must deduct TDS under the new regime automatically. An employee who wants the old regime applied must explicitly declare this at the start of the tax year on Form 122 (the new employee tax-regime declaration).

New Tax Regime slab rates (Tax Year 2026-27):

Under the new regime, resident individuals get a rebate of up to ₹60,000 under Section 156(2) if total income doesn’t exceed ₹12,00,000 — effectively making income up to ₹12,00,000 (₹12.75 lakh gross, after the ₹75,000 standard deduction) tax-free. Most exemptions and deductions (HRA, LTA, Chapter VIII/Section 123 investments) are not available under the new regime — only the ₹75,000 standard deduction, employer NPS contribution, and a few specified items are allowed.

Old Tax Regime slab rates (age-based):

Above the exemption limit: 5% (₹2.5L–₹5L), 20% (₹5L–₹10L), 30% (above ₹10L). A rebate of up to ₹12,500 under Section 156(1) applies where total income doesn’t exceed ₹5,00,000. The old regime permits the traditional deductions — HRA, LTA, Section 123 (Chapter VIII) investments like PPF/ELSS/life insurance, Section 124 health insurance, and home loan interest — but only if the employee submits proof via Form 124 (the new investment declaration form, replacing Form 12BB).

Regardless of regime, a flat 4% Health & Education Cess applies on the computed tax.

How the Monthly TDS Is Actually Calculated

1.          Estimate the employee’s gross salary for the full tax year (basic, HRA, allowances, expected bonus).

2.          Apply the chosen regime — subtract standard deduction and, if old regime, subtract declared and substantiated exemptions/deductions.

3.          Compute tax on the net taxable income using the applicable slab rates.

4.          Add 4% cess.

5.          Divide the annual tax figure by the number of remaining months in the tax year to get the monthly deduction (the “average rate” method).

This means salary TDS isn’t a flat percentage — it changes through the year as bonuses are paid, investment proofs are submitted, or an employee changes jobs. If you switch employers mid-year, submit your previous salary and TDS details to the new employer (via Form 12B-equivalent declaration) so TDS is computed correctly on your combined annual income — otherwise you risk under-deduction and a tax shortfall at return-filing time.

Compliance Calendar for Employers

Form 138 (the successor to Form 24Q) has two annexures: Annexure I (deductor/deductee/challan details, filed every quarter) and Annexure II (full-year salary breakup, filed only with the Q4 return).

Illustrative Example

Raman earns ₹18,00,000 CTC (say ₹16,50,000 estimated taxable salary before standard deduction).

•             If he opts for the Old Regime (declares via Form 122, submits proofs via Form 124): after HRA, Section 123 investments, and other deductions, his employer may compute a monthly TDS based on the age-based slab rates above.

•             If he stays on the Default New Regime: after the ₹75,000 standard deduction, his taxable income might fall to ₹11,25,000. Since this doesn’t exceed the ₹12,00,000 threshold under Section 156(2), he gets a full rebate — no TDS is deducted at all, despite a healthy CTC.

This illustrates why regime choice matters enormously for TDS cash flow, even though the final tax liability can still be reconciled either way at the time of filing the return.

Key Points Employees Should Remember

•             The regime declared to the employer for TDS purposes is not binding — you can choose a different regime while filing your ITR, and any excess TDS gets refunded.

•             The regime choice, once made for the year, cannot be changed with the employer mid-year — only at the start of the next tax year (though it can be changed at return-filing time).

•             Report other income (bank interest, rental income) to your employer if you want it factored into the TDS estimate — this avoids a large tax outgo at year-end. Losses (other than house-property loss) cannot be declared to the employer for this purpose.

•             Cross-check the TDS reflected in Form 130 (successor to Form 16) against Form 168 (the new Act’s equivalent of Form 26AS/AIS) before filing your return.

Frequently Asked Questions

Q1. Does Section 392 change how much tax is deducted from my salary? No. The slabs, rebate thresholds, and standard deduction amounts are unchanged — only the section number, form names, and reporting codes have changed.

Q2. What happens if I don’t declare a regime to my employer? Your employer will default to the New Tax Regime for TDS computation, since it is the default regime under Section 202.

Q3. Is Section 392 applicable to freelancers or consultants? No. Section 392 covers only income chargeable under the head “Salaries.” TDS on payments to freelancers and consultants (professional fees) falls under Section 393.

Q4. What if my Form 130 doesn’t match my Form 168? Follow up with your employer’s payroll/HR team — the mismatch is usually due to a delayed or incorrect quarterly return (Form 138) filing, which your employer will need to correct.

This guide reflects the position under the Income Tax Act, 2025 as applicable to salary paid from 1st April 2026 onward. Salary paid up to 31st March 2026 continues to be governed by Section 192 of the Income Tax Act, 1961.