TDS on Salary Under Section 192: An Employer's Guide

Employers in India must deduct income tax from salary at the time of payment, using the average rate on the employee's estimated annual salary income. For salary paid up to 31 March 2026 this duty sits in Section 192 of the Income-tax Act, 1961. For salary paid from 1 April 2026 it sits in Section 392(1) of the Income-tax Act, 2025, and the employer is expected to reset the computation for the new tax year. This guide was checked against the Income Tax Department's pages in October 2026; confirm current rates and forms on incometax.gov.in before you run payroll.

This is general information, not tax advice. Rates, rebates and forms change with each Finance Act, so verify the figures for the year you are processing.

Who this is for and what you will have

This guide is for small-business owners, payroll administrators and accountants who run salaries in India and need to deduct TDS correctly. By the end you will understand the legal basis and the Section 192 to Section 392 transition, be able to calculate monthly TDS with the average-rate method, know what to collect from employees, and know the deposit, return and certificate steps.

Section 192 and Section 392: what changed

Under the Income-tax Act, 1961, Section 192 required any person responsible for paying income chargeable under the head "Salaries" to deduct income tax at the time of payment, at the average rate of income tax computed on the estimated income of the employee for the financial year.

The Income-tax Act, 2025 comes into effect from April 2026. The Income Tax Department's TDS compliance FAQ on the e-Filing portal explains how the transition works:

• The Act that governs TDS depends on when the earlier of credit or payment occurs. For salary, tax is deducted at the time of payment.
• Salary for March 2026 paid on 31 March 2026 falls under the 1961 Act. Salary for April 2026 paid on 30 April 2026 falls under the 2025 Act.
• Salary for FY 2025-26 (paid up to March 2026): TDS obligations are in accordance with Section 192 of the old Act.
• Salary for tax year 2026-27 (paid from April 2026): TDS obligations are in accordance with Section 392(1) of the new Act.
• The employer must reset the TDS computation from 1 April 2026 for the new tax year.
• The FAQ states that consolidating the withholding sections into a tabular presentation (Section 393) is not a change in TDS rates or tax policy.
• Quoting old section numbers for transactions after April 2026 may lead to processing errors when the TDS return is filed, and the deductor may need to file a correction statement.

In practice, you update three things: payroll software (section references and terminology), employee declaration forms (the FAQ notes that investment declarations for the new tax year should reference the 2025 Act, and Section 80C of the old Act is now referenced as the Schedule XV read with section 123), and challans and statements.

What you need before you start

• A TAN for the employer, registered on the e-Filing portal. You log in with the TAN to file TDS statements.
• Each employee's PAN, and details of salary components.
• Each employee's tax regime choice for the year, and their declarations of investments and deductions where the old regime applies. Collect these at the start of the year and refresh them near the end.
• Details of salary from any previous employer in the same year, if the employee joined mid-year.
• Payroll software that supports the 2025 Act terminology, or a spreadsheet you control carefully.

How the average-rate method works

The principle is the same under both Acts: estimate the full year, compute the annual tax, and spread it across the pay periods.

1. Estimate the employee's total salary income for the year, including regular pay, allowances and expected bonuses.
2. Subtract the deductions available to them under the regime they have chosen. For example, the Income Tax Department's threshold table lists a standard deduction for salaried taxpayers of Rs 75,000 under the new regime (section 115BAC) and Rs 50,000 under the old regime for assessment year 2026-27. Confirm the amount for tax year 2026-27.
3. Compute the annual tax on the resulting income using the slab rates for the year, plus any rebate and surcharge, and cess where applicable.
4. Divide the annual tax by the number of pay periods in the year to get the monthly deduction. Because the tax already deducted is subtracted from the annual total, the monthly figure is recalculated whenever the estimate changes.

Slab rates

The e-Filing portal's pages for assessment year 2026-27 (income earned in FY 2025-26) show these new-regime slabs:

For the same year, the new-regime rebate under section 87A is up to Rs 60,000 where taxable income does not exceed Rs 12,00,000. The table is for the earlier year and the e-Filing pages reviewed here do not give tax year 2026-27 slabs, so check the slabs, rebate and any marginal relief that apply to tax year 2026-27 before you compute. The old regime has its own slabs, so use the table for the regime each employee has chosen.

A simple worked example

This example uses the slab table above and ignores surcharge and cess for clarity. It is an illustration, not a payroll calculation.

• Estimated annual salary: Rs 9,00,000.
• Standard deduction (new regime): Rs 75,000, giving taxable income of Rs 8,25,000.
• Tax on Rs 8,25,000 using the slabs: 5% of Rs 4,00,000 = Rs 20,000, plus 10% of Rs 25,000 = Rs 2,500, total Rs 22,500.
• Rebate: taxable income does not exceed Rs 12,00,000, so the rebate of up to Rs 60,000 brings the tax to nil.

So the monthly TDS is nil in this case. Change the salary to Rs 14,00,000 and the rebate no longer applies, so the monthly figure is the annual tax divided by 12, adjusted each month for tax already deducted.

Step-by-step payroll routine

1. At the start of the year, collect regime choices and investment declarations. Record them in payroll.
2. Each month, estimate the annual salary, compute the annual tax, subtract tax already deducted and divide the balance by the remaining months.
3. Deduct the tax when the salary is paid.
4. Re-estimate whenever pay changes, a bonus is paid, an employee joins or leaves, or declarations change.
5. Near the year end, collect proofs for the declared investments and adjust the remaining months so the total deducted matches the final liability.
6. Deposit the TDS, file the quarterly statement and issue the annual certificate, as covered below.

Depositing the tax

The Income Tax Department's FAQ gives one example: the tax deducted in March 2026 is due for deposit on 30 April 2026. Check the due date for each month on the portal. Late deposit attracts interest at 1.5 percent per month from the date of deduction to the date of actual payment, as stated in the FAQ.

Quote the correct section on the challan and in your records. Quoting an old Act section for post-April 2026 payments can create mismatches when you file the statement.

Quarterly statement: Form 138

For salary, pension and interest TDS, the quarterly statement is Form 138, which the Income Tax Department lists as earlier Form 24Q. Employers who deduct tax from salaries file it, as do specified banks in the cases the page describes. Due dates on the portal:

To file, you need a valid TAN registered on the e-Filing portal. You prepare the FVU file in the Return Preparation Utility (RPU), zip it and upload it through the portal while logged in with the same TAN. A rejection can occur if the TAN in the FVU file does not match the logged-in TAN, or if the FVU version does not match the version shown on the form screen. For corrections, the original RRR number in the FVU must match the one you enter.

The portal's FAQ says TRACES and the return preparation utilities support both old-format returns (for periods up to March 2026) and new-format returns (from April 2026 onwards). For the older periods and the 24Q process, see /blog/tds-return-filing-24q-26q-due-dates-guide.

Annual certificate: Form 130

For salary TDS, the Income Tax Department lists Form 130 as the certificate earlier issued as Form 16. The Department's FAQ says the quarterly TDS statement must be filed before the certificate can be generated, and that the employer must download Form 130 from TRACES and give it to the employee after signing it digitally or manually. File the Q4 statement promptly so the certificate is available, and confirm the issue deadline in the current rules, which this guide does not state. Employees use the certificate when they file their own returns, and its figures should match the employer's statements.

Troubleshooting

Deduction looks too low or too high

Check the estimate: did you include the full year's bonus, the correct standard deduction, the employee's chosen regime and the previous employer's income? Re-run the annual estimate and adjust the remaining months.

The statement is rejected on upload

Check that the TAN in the FVU file matches the TAN you logged in with and that the FVU version matches the portal. Use a correction FVU only for correction statements.

Mismatch or processing error after April 2026

Check that section numbers for payments made from April 2026 use the new Act references and not the old ones. If the statement already went in with old references, you may need to file a correction statement.

An employee changes regime mid-year

Check the current rules on regime choice on the Income Tax Department portal, obtain the employee's declaration in the form your payroll requires, and recompute the annual tax under the chosen regime.

An employee joins mid-year

Collect the income and TDS details from the previous employer so your estimate covers the full year's salary, not just your part of it.

Late deposit interest

Interest runs at 1.5 percent per month from the date of deduction to the date of payment. Deposit the shortfall and interest together, and note the interest in the statement.

Checklist

• TAN active and logged into the e-Filing portal.
• Payroll updated for the 2025 Act terminology and Section 392 references from April 2026.
• Each employee's regime choice, PAN and investment declarations recorded.
• Annual estimate prepared and re-estimated when pay changes.
• Slabs, rebate and standard deduction confirmed for the tax year.
• TDS deposited by the due date each month, with the correct section on the challan.
• Quarterly Form 138 filed by 31 July, 31 October, 31 January and 31 May.
• Form 130 certificates issued to employees on time.

For more on GST-side compliance in Indian accounting software, see /blog/tally-prime-gst-setup-and-filing-guide.

References

• Income Tax Department, TDS Compliance FAQ (transition to the Income-tax Act, 2025): https://www.incometax.gov.in/iec/foportal/help/all-topics/e-filing-services/tds-compliance
• Income Tax Department, Form 138 user manual: https://www.incometax.gov.in/iec/foportal/newformpage/forms/form138-um
• Income Tax Department, Section 192: https://www.incometaxindia.gov.in/w/section-192-64
• Income Tax Department, Threshold limits under the Income-tax Act: https://www.incometaxindia.gov.in/w/threshold-limits-under-income-tax-act
• Income Tax Department, Form No. 130 FAQs: https://www.incometaxindia.gov.in/documents/d/guest/form-130-faqs
• Income Tax Department, Form No. 138 FAQs: https://www.incometaxindia.gov.in/documents/d/guest/form-138-faqs
• Income Tax Department e-Filing, ITR-2 FAQs (new regime slabs, AY 2026-27): https://www.incometax.gov.in/iec/foportal/help/all-topics/e-filing-services/itr-2/itr-2-faqs