TDS on Salary 2026: New Rules, Forms & Employer Obligations

If you are an employer, HR professional, or payroll manager in India, the TDS on salary framework is being completely restructured from 01 April 2026. Over 60 separate TDS sections are being consolidated into just three, every form number is changing, and new standardised employee declaration forms are being introduced.

This guide covers the new Section 392 salary TDS provisions, every form change employers must implement, the step-by-step TDS calculation process, deposit timelines, and penalties for non-compliance under the Income Tax Act, 2025.

What Is TDS on Salary Under Section 392 and Why Is It Changing?

TDS on salary under Section 392 of the Income Tax Act, 2025 is the mechanism by which employers deduct income tax from employee salaries at the time of payment and deposit it with the government on the employee’s behalf. It replaces Section 192 of the Income Tax Act, 1961, consolidating salary TDS provisions into a single, cleaner section under the new Act.

The change is part of the broader consolidation where 60+ TDS/TCS sections (Sections 192-194T of the old Act) are restructured into just three sections: Section 392 (salary TDS), Section 393 (non-salary TDS), and Section 394 (TCS). This simplification reduces compliance complexity for employers who previously had to navigate dozens of scattered provisions.

For employers managing TDS return filing services, the new framework requires updating every form number, every section reference, and every payroll system configuration before 01 April 2026.

Key Terms You Should Know

• Section 392 (IT Act, 2025): The single section governing TDS on salary. Replaces Section 192 of the 1961 Act. Employer must estimate annual income and deduct tax monthly at applicable slab rates.
• Form 130 (TDS Certificate): Replaces Form 16. Now has 3 parts (was 2) plus a senior citizen annexure. Issued by employer to employee after year-end.
• Form 143 (Quarterly TDS Return): Replaces Form 24Q. Filed quarterly by employer with details of salary paid and TDS deducted for all employees.
• Form 124 (Employee Claims): Replaces Form 12BB. Employee submits to DDO/employer to claim HRA, LTC, home loan interest. Now requires landlord relationship disclosure for HRA.
• Form 122 (Employee Declaration): New standardised form for employees to declare income from previous employers, house property losses, and prior TDS/TCS deductions to current employer.
• Form 141 (Unified TDS Challan): Replaces four separate forms (26QB, 26QC, 26QD, 26QE) into a single unified form for property/rent TDS.
• Form 168 (AIS): Replaces Form 26AS as the Annual Information Statement consolidating all TDS, advance tax, and financial transactions linked to PAN.

Who Must Comply with the New Salary TDS Rules?

Every employer in India who pays salary to employees is required to deduct TDS under Section 392:

• All companies and LLPs: Must deduct TDS on salary, file Form 143 quarterly, issue Form 130 annually. No minimum employee threshold - even one employee triggers the obligation.
• Government departments: Same obligations. TDS deposit timelines differ slightly - government deductors deposit on the same day the tax is deducted.
• Partnership firms paying salary to employees (not partners): Must deduct TDS under Section 392. Partner remuneration falls under Section 393 (non-salary TDS at 10% under Section 194T equivalent).
• Employers with multiple locations: Must file separate Form 143 returns for each TAN. If a single TAN is used across locations, one consolidated return suffices.
• HR and payroll teams: Must update payroll software to reference Section 392, generate Form 130 (not Form 16), accept Form 124 (not Form 12BB), and process Form 122 declarations.

Companies using professional payroll processing and management services should confirm their provider has updated all form numbers and section references before the April 2026 salary cycle.

Legal Framework: Old TDS Sections vs New Consolidated Sections

Note: The consolidation from 60+ sections to 3 does not change TDS rates or thresholds. It simplifies compliance by grouping all salary TDS under one section, all non-salary TDS under another, and all TCS under a third. The substantive obligations remain identical.

How to Calculate and Deduct TDS on Salary: Step-by-Step

1. Estimate the employee’s annual gross salary. Include basic pay, DA, HRA, special allowance, bonus, incentives, commission, and all other taxable components for the full Tax Year (01 April to 31 March). Include salary from previous employer if Form 122 declaration is submitted.

2. Determine the applicable tax regime. The new tax regime is the default from FY 2026-27. If the employee wants the old regime, they must inform the employer at the start of the year through Form 122. Employees can switch regimes annually. See our Draft Income Tax Rules 2026 guide for the complete allowance and perquisite changes under each regime.

3. Compute exemptions and deductions. New regime: standard deduction of Rs 75,000 only. No HRA, LTA, or 80C. Old regime: all exemptions and deductions available - HRA (Rule 279), LTA, Section 80C (now Section 123), 80D, standard deduction Rs 50,000, etc. Apply the correct set based on the chosen regime.

4. Add other income declared by employee. If the employee has declared income from house property (including loss), other sources, or previous employer through Form 122, add this to the salary income to compute total estimated income.

5. Compute taxable income and apply slab rates. Taxable Income = Gross Salary − Exemptions − Deductions + Other Declared Income. Apply the applicable slab rates (old or new regime). Deduct rebate under Section 87A (Rs 60,000 for new regime if income ≤ Rs 12 lakh).

6. Deduct TDS monthly. Divide the annual tax liability by 12 (or remaining months). Deduct this amount from each monthly salary payment. Recalculate if salary changes, bonus is paid, or declarations are updated mid-year.

7. Deposit TDS by the 7th of following month. All TDS deducted must be deposited with the government by the 7th of the month following the month of deduction. For March, the deadline is 30th April. Use the prescribed challan with the employer’s TAN.

Documents and Records Needed for Salary TDS Compliance

• Form 122 (employee declaration) - income from previous employer, house property loss, prior TDS/TCS
• Form 124 (employee claims) - HRA, LTC, home loan interest proofs. Landlord PAN mandatory if rent >Rs 1 lakh. Landlord relationship must be disclosed.
• Investment proofs for Section 123 (80C equivalent), 80D, NPS, home loan principal
• Tax regime selection confirmation from each employee (new regime is default)
• Payroll software updated with Section 392 reference, Form 130/143 generation capability
• TAN registration certificate (required for all employers deducting TDS)
• Challan records for all TDS deposits with government (7th of following month)
• Form 130 template (3-part TDS certificate) ready for year-end issuance
• Form 143 quarterly return filing schedule (Q1: 31 July, Q2: 31 October, Q3: 31 January, Q4: 31 May)
• TRACES portal access for Form 130 download, corrections, and verification

TDS Deposit and Return Filing Deadlines: Employer Calendar

Every employer must follow these deadlines for Tax Year 2026-27:

Note: Form 143 Q4 filing is the most critical - Annexure II and III (actual employee-wise particulars for the full year) are mandatory in Q4. For Q1-Q3, only Annexure I is required. Late filing attracts Rs 200/day penalty (capped at TDS amount).

Common Mistakes to Avoid in Salary TDS Compliance

Mistake 1: Using old form numbers after 01 April 2026. Form 16 is now Form 130. Form 24Q is now Form 143. Form 12BB is now Form 124. Payroll systems generating old form numbers will produce non-compliant returns that the e-filing portal rejects. Employers managing income tax return filing for employees must ensure correct form references.

Mistake 2: Applying old regime deductions to new regime employees. The new regime is the DEFAULT from FY 2026-27. If an employee has not submitted Form 122 opting for the old regime, the employer MUST compute TDS under the new regime - which means NO HRA, NO 80C, NO LTA deductions. Only Rs 75,000 standard deduction applies.

Mistake 3: Not collecting Form 122 from employees joining mid-year. When an employee joins mid-year from a previous employer, they must submit Form 122 declaring income and TDS from the previous employment. Without this form, the new employer cannot account for prior income, leading to under-deduction of TDS.

Mistake 4: Missing the 7th-of-month deposit deadline. TDS deducted from salary MUST be deposited by the 7th of the following month. Late deposit attracts interest at 1.5% per month from the date of deduction to the date of deposit. For a company with 100 employees and average TDS of Rs 10,000 each, a 1-month delay costs Rs 15,000 in interest.

Mistake 5: Not filing Form 143 quarterly on time. Late filing of quarterly TDS return attracts a penalty of Rs 200 per day until the return is filed, subject to a maximum of the TDS amount. Additionally, the employer cannot generate Form 130 certificates for employees until Form 143 is filed - delaying employee ITR filing.

Penalties for Non-Compliance with Salary TDS Rules

The penalty framework for TDS non-compliance is stringent and applies to employers as deductors:

Under Section 201 equivalent provisions of the 2025 Act, an employer who fails to deduct TDS or fails to deposit it after deduction is treated as an assessee-in-default. The employer must pay the TDS amount plus interest at 1% per month (for failure to deduct) or 1.5% per month (for failure to deposit after deduction).

Late filing of Form 143 quarterly return attracts Rs 200 per day of delay under Section 234E equivalent, subject to a maximum of the total TDS deductible. For a quarterly TDS liability of Rs 50 lakh, the maximum penalty is Rs 50 lakh.

Filing an incorrect Form 143 with wrong PAN, wrong TDS amount, or wrong section code attracts a penalty of Rs 10,000 to Rs 1,00,000 under Section 271H equivalent. This penalty is in addition to the correction obligation.

Failure to issue Form 130 to employees on time can result in prosecution proceedings and penalties. Employees cannot file their ITR without Form 130, making timely issuance a critical employer obligation.

How TDS on Salary Connects with ITR Filing and Other Provisions

The TDS deducted under Section 392 is reflected in the employee’s Form 168 (replacing Form 26AS), which is the master document for verifying tax credits during ITR filing. Any mismatch between Form 130 (employer’s TDS certificate) and Form 168 (government’s record) triggers a processing notice. Employees using tax planning services should verify both documents before filing their ITR for Tax Year 2026-27.

The quarterly Form 143 filed by the employer feeds directly into the government’s tax credit system. Only after the employer files Form 143 does the TDS appear in the employee’s Form 168. Late filing by the employer delays the employee’s ability to file their own ITR and claim refunds - creating a cascading compliance failure.

The new standardised Form 122 (employee declaration) and Form 124 (employee claims) create a structured data flow from employee to employer to government. This structure enables pre-filled ITR returns where salary income, TDS, perquisites, and exemptions are auto-populated from the employer’s filings - reducing manual errors and speeding up processing.

What Do the New Rules Cover? Complete Form Mapping

Key Takeaways

TDS on salary provisions are consolidated from Section 192 (and 60+ scattered sections) into just Section 392 (salary TDS), Section 393 (non-salary TDS), and Section 394 (TCS) under the Income Tax Act, 2025, effective 01 April 2026.

Form 16 is replaced by Form 130 with 3 parts plus a senior citizen annexure. Form 24Q is replaced by Form 143. Form 12BB is replaced by Form 124 with mandatory landlord relationship disclosure for HRA claims.

The new standardised Form 122 enables employees to declare previous employer income, house property losses, and prior TDS to their current employer in a structured format, enabling pre-filled ITR returns.

Employers must deposit TDS by the 7th of the following month and file Form 143 quarterly. Late deposits attract 1.5% interest per month; late Form 143 filing attracts Rs 200/day penalty capped at the TDS amount.

The new regime is the default for FY 2026-27. Employers must compute TDS under the new regime (standard deduction Rs 75,000 only, no HRA/80C/LTA) unless the employee explicitly opts for the old regime via Form 122.

Need Help with TDS Compliance?

The transition to Section 392 and the new form numbering under the Income Tax Act, 2025 requires every employer to update payroll software, train HR teams, and establish new filing workflows before the April 2026 salary cycle.

Explore our TDS return filing and compliance services for end-to-end support during this transition.

For queries, reach out at +91 945 945 6700 or WhatsApp us directly.