TDS on Salary Section 192: Essential Employer Guide for FY 2025-26 — Calculation, Compliance & Penalties
Every employer in India who pays salary above the basic exemption limit is legally obligated to deduct Tax Deducted at Source (TDS) on salary under Section 192 of the Income Tax Act, 1961. Yet for thousands of payroll managers, HR professionals, and small business owners, the monthly TDS calculation remains one of the most error-prone compliance tasks of the financial year. A single miscalculation — wrong tax regime applied, incorrect declaration considered, or late deposit — can trigger penalties, interest demands, and employee disputes. This definitive employer guide covers everything you need to master TDS on salary Section 192 for FY 2025-26: the legal framework, step-by-step TDS calculation with fully worked numerical examples, Form 12BB collection, new regime vs old regime implications for payroll, TDS deposit due dates, Form 24Q filing, Form 16 issuance, multi-employer scenarios, perquisite taxation, and the full penalty structure for non-compliance. Read this once — and handle your payroll TDS with complete confidence all year.
📋 Table of Contents
- What Is TDS on Salary Under Section 192?
- Who Must Deduct TDS — Applicability & Scope
- New Regime vs Old Regime — TDS Implications for Employers
- Form 12BB — Investment Declaration by Employees
- Step-by-Step TDS Calculation Under Section 192 (FY 2025-26)
- Fully Worked Examples — Old & New Regime Comparison
- Perquisites and Section 17 — Valuation for TDS
- Multiple Employers & Mid-Year Job Changes — Form 12B
- TDS Deposit Due Dates and Challan 281
- Form 24Q — Quarterly TDS Returns for Salary
- Form 16 — TDS Certificate Issuance to Employees
- Penalties for Section 192 Non-Compliance
- Case Study — Complete Payroll TDS Scenario
- Key Takeaways
- Frequently Asked Questions
- Conclusion
1. What Is TDS on Salary Under Section 192?
Section 192 of the Income Tax Act, 1961 mandates that any person responsible for paying salary to an employee must deduct income tax at source at the time of payment. Unlike most other TDS provisions which operate at fixed rates, Section 192 is unique — there is no flat percentage rate. Instead, TDS on salary is calculated on the basis of the applicable income tax slab rates for the financial year, applied to the employee’s estimated total taxable income. The mechanism works as follows. At the start of each financial year — or at the time of joining — the employer estimates the employee’s total annual income (salary plus any other income declared). The employer then computes the income tax payable on this estimated income under the applicable tax regime, and divides the annual tax liability by the number of months remaining in the financial year. This gives the monthly TDS deduction, which is withheld from the salary before it is credited to the employee’s account. The core objective of Section 192 is to ensure the government receives tax revenue in a regular, spread-out manner throughout the year rather than in a single lump sum when the employee files their ITR. This benefits both the exchequer (steady cash flow) and the employee (no large year-end tax payment). Key characteristics of TDS under Section 192:- Applies to both resident and non-resident employees receiving salary from an Indian employer
- TDS is deducted at the time of payment or credit of salary — whichever is earlier
- Covers salary in all its forms — basic pay, dearness allowance, perquisites, bonus, arrears, advance salary, and commission forming part of salary
- No TDS if estimated taxable salary does not exceed the basic exemption limit
- The employer recalculates and adjusts TDS every month based on revised estimates, new declarations, or mid-year salary changes
2. Who Must Deduct TDS — Applicability & Scope
The obligation to deduct TDS under Section 192 falls on any person responsible for paying salary to an employee. The law does not distinguish by the size or nature of the employer. The following entities are all covered:- Private limited companies and public limited companies
- Limited Liability Partnerships (LLPs) and partnership firms
- Sole proprietorships and individual employers (domestic help, drivers, etc. if salary exceeds threshold)
- Hindu Undivided Families (HUFs)
- Central and State Government departments
- Trusts, societies, NGOs, and Section 8 companies paying salaries
- Educational institutions, hospitals, and professional firms
| Employee Category | Basic Exemption (Old Regime) | Basic Exemption (New Regime) |
|---|---|---|
| Individuals below 60 years | ₹2,50,000 | ₹4,00,000 |
| Senior Citizens (60–80 years) | ₹3,00,000 | ₹4,00,000 |
| Super Senior Citizens (80+ years) | ₹5,00,000 | ₹4,00,000 |
⚠️ Important: If the employee does not furnish their PAN to the employer, TDS must be deducted at the rate of 20% (or the applicable slab rate — whichever is higher) under Section 206AA. This is a frequently missed compliance point for new joinees whose PAN verification is pending.
3. New Regime vs Old Regime — TDS Implications for Employers
Since FY 2023-24, the new tax regime under Section 115BAC is the default. This has significant payroll implications. If an employee does not explicitly communicate their regime preference in writing, the employer must compute TDS under the new regime.How the Employee Communicates Regime Choice
An employee wishing to opt for the old tax regime must submit a declaration to the employer, typically as part of Form 12BB or a separate written communication. For employees with business or professional income, the formal opt-out is filed via Form 10-IEA with the Income Tax Department — the employer must be informed of this choice.Key Differences in TDS Computation by Regime
| Parameter | New Regime (Default) | Old Regime (Employee must opt) |
|---|---|---|
| Standard Deduction | ₹75,000 | ₹50,000 |
| Section 80C (ELSS, PPF, LIC) | ❌ Not available | ✅ Up to ₹1,50,000 |
| HRA Exemption (Section 10(13A)) | ❌ Not available | ✅ As per actual / formula |
| Section 80D (Health Insurance) | ❌ Not available | ✅ Up to ₹25,000–₹50,000 |
| Home Loan Interest (Section 24b) | ❌ Not available | ✅ Up to ₹2,00,000 |
| LTA Exemption | ❌ Not available | ✅ Actual twice in 4-year block |
| Employer NPS (Section 80CCD(2)) | ✅ Available | ✅ Available |
| Section 87A Rebate | Up to ₹60,000 (income ≤ ₹12L) | Up to ₹12,500 (income ≤ ₹5L) |
| Basic Exemption Limit | ₹4,00,000 | ₹2,50,000 |
🎯 Expert Insight: Many employers make the mistake of continuing to deduct TDS under the old regime for employees who have not explicitly opted for it — simply because that was the practice in previous years. From FY 2023-24 onwards, this is incorrect. The employer must apply the new regime as default unless the employee submits a written opt-out declaration. This error can lead to excess TDS deduction and employee complaints.
4. Form 12BB — Investment Declaration by Employees
Form 12BB (introduced by the CBDT vide Rule 26C) is the statement of claims for deduction of tax under Section 192. Every employee must submit this form to their employer at the beginning of the financial year, declaring their anticipated investments, exemptions, and deductions.What Does Form 12BB Contain?
Form 12BB is divided into sections covering:- House Rent Allowance (HRA) details — Name and address of landlord, PAN of landlord (mandatory if annual rent exceeds ₹1 lakh), and amount of rent paid
- Leave Travel Allowance / Concession (LTA/LTC) — Evidence of actual journey undertaken
- Home loan interest deduction (Section 24) — Name and address of lender, account number, and interest amount
- Chapter VI-A deductions — Section 80C investments (PPF, LIC, ELSS, NSC, home loan principal), Section 80D (health insurance premiums), Section 80E, 80G, 80TTA, and others
- Other income declared — Interest income, rental income, or any other income the employee wishes the employer to factor into TDS computation
When Must Form 12BB Be Submitted?
Employees should submit Form 12BB at the start of the financial year (April) with estimated values. The employer bases TDS deductions for the first few months on these estimates. By January–February, employees must provide actual investment proofs. The employer then reconciles the actual investments against declarations and adjusts the TDS for the remaining months accordingly.
⚡ Pro Tip: If an employee submits inflated declarations in Form 12BB to reduce monthly TDS — and then fails to make the actual investments — the employer will deduct higher TDS in the last 2–3 months to recover the shortfall. This creates significant cash flow strain for the employee. Always encourage employees to make realistic, accurate declarations in April itself.
5. Step-by-Step TDS Calculation Under Section 192 (FY 2025-26)
Here is the methodical process an employer follows to compute monthly TDS on salary under Section 192:1
Estimate Gross Annual Salary — Add all components: Basic + Dearness Allowance (DA) + House Rent Allowance (HRA) + Special Allowances + Leave Travel Allowance + Bonus + Commission + Perquisites (valued as per Rule 3) + any advance salary or arrears expected during the year.
2
Deduct Section 10 Exemptions — Subtract exemptions as declared in Form 12BB. Key exemptions: HRA under Section 10(13A) calculated as minimum of (i) actual HRA received, (ii) 50% of salary in metro / 40% in non-metro, (iii) actual rent paid minus 10% of salary. Also deduct LTA exemption, gratuity (if retiring during year), leave encashment, and Children’s Education Allowance (₹100/month per child, max 2 children).
3
Apply Standard Deduction — Deduct ₹75,000 under the new regime or ₹50,000 under the old regime from the net salary after Section 10 exemptions.
4
Add Other Income / Deduct House Property Loss — If the employee has declared other income (bank interest, rental income), add it to taxable salary. If the employee declares a loss from house property (home loan interest exceeding rental income), deduct it — but this deduction is capped at ₹2,00,000 under Section 24(b) and not available under the new regime. The employee provides this via Rule 26B declaration.
5
Deduct Chapter VIA Deductions (Old Regime Only) — Subtract deductions under Section 80C (up to ₹1,50,000), 80D (health insurance), 80CCD(1B) (NPS), 80E (education loan), 80G (donations), 80TTA (savings interest) as declared. Under the new regime, only Section 80CCD(2) (employer’s NPS contribution — up to 14% of salary for government, 10% for others) is permissible.
6
Compute Tax on Net Taxable Income — Apply the applicable slab rates for the chosen regime (refer tables in Section 3). Compute the basic tax. Add surcharge if income exceeds ₹50 lakh (10% surcharge for ₹50L–₹1Cr; 15% for ₹1Cr–₹2Cr; 25% for ₹2Cr–₹5Cr; 37% — capped at 25% for new regime — above ₹5Cr). Add 4% Health and Education Cess on tax plus surcharge.
7
Deduct Section 87A Rebate (if applicable) — Under the new regime, if taxable income does not exceed ₹12,00,000, the entire tax liability is wiped out by the ₹60,000 rebate. Under the old regime, if taxable income does not exceed ₹5,00,000, a rebate of up to ₹12,500 applies. Apply rebate before adding cess.
8
Divide by Remaining Months — Divide the net annual estimated tax liability by the number of months remaining in the financial year (or months of employment if the employee joins mid-year). The result is the monthly TDS deduction amount.
9
Adjust Each Month — If salary changes (increment, bonus, change in declarations), recalculate the projected annual tax and adjust the monthly TDS for the remaining months. This dynamic recalculation continues until March, where any shortfall or excess is corrected in the final month’s deduction.
6. Fully Worked Examples — Old & New Regime Comparison
Let us work through a complete TDS on salary calculation for a typical employee under both regimes for FY 2025-26 to understand the difference in monthly deductions.Employee Profile: Mr. Arjun Verma, Senior Manager
- Age: 38 years | City: Mumbai (Metro)
- Basic Salary: ₹80,000/month | DA: ₹10,000/month
- HRA: ₹30,000/month | Special Allowance: ₹20,000/month
- Employer NPS contribution: 10% of basic = ₹8,000/month
- Annual Bonus: ₹1,00,000
- Rent paid: ₹25,000/month in Mumbai
- LIC premium: ₹50,000/year | PPF: ₹60,000/year | ELSS: ₹40,000/year
- Health insurance: ₹18,000/year (self + spouse)
- Home loan interest: ₹1,60,000/year
Gross Annual Income Calculation
| Component | Monthly | Annual |
|---|---|---|
| Basic Salary | ₹80,000 | ₹9,60,000 |
| Dearness Allowance | ₹10,000 | ₹1,20,000 |
| House Rent Allowance | ₹30,000 | ₹3,60,000 |
| Special Allowance | ₹20,000 | ₹2,40,000 |
| Annual Bonus | — | ₹1,00,000 |
| Gross Annual Salary | — | ₹17,80,000 |
🔵 Calculation Under OLD Tax Regime
Gross Annual Salary₹17,80,000
Less: HRA Exemption [Min of: HRA received ₹3,60,000 | 50% of salary ₹5,40,000 | Rent − 10% salary: ₹3,00,000 − ₹1,08,000 = ₹1,92,000] → ₹1,92,000− ₹1,92,000
Less: Standard Deduction (Old Regime)− ₹50,000
Net Salary Income₹13,38,000
Less: Home Loan Interest (Section 24b)− ₹1,60,000
Gross Total Income₹11,78,000
Less: Section 80C (₹50,000 + ₹60,000 + ₹40,000)− ₹1,50,000
Less: Section 80CCD(2) — Employer NPS (₹8,000 × 12)− ₹96,000
Less: Section 80D — Health Insurance− ₹18,000
Net Taxable Income₹9,14,000
Tax: ₹12,500 (5% on ₹2.5L–₹5L) + ₹82,800 (20% on ₹5L–₹9.14L)₹95,300
Add: 4% Health & Education Cess₹3,812
Annual Tax Liability₹99,112
Monthly TDS (÷12)≈ ₹8,260
🟢 Calculation Under NEW Tax Regime (Default)
Gross Annual Salary (no HRA or LTA exemptions)₹17,80,000
Less: Standard Deduction (New Regime)− ₹75,000
Less: Section 80CCD(2) — Employer NPS only− ₹96,000
Net Taxable Income₹16,09,000
Tax: 5% on ₹4L–₹8L = ₹20,000 | 10% on ₹8L–₹12L = ₹40,000 | 15% on ₹12L–₹16.09L = ₹61,350₹1,21,350
Add: 4% Health & Education Cess₹4,854
Annual Tax Liability₹1,26,204
Monthly TDS (÷12)≈ ₹10,517
7. Perquisites and Section 17 — Valuation for TDS
Perquisites (perks) are benefits provided by the employer to the employee in addition to salary. Under Section 17(2) of the Income Tax Act, perquisites are treated as part of salary and must be included in the employee’s taxable income for the purpose of TDS computation under Section 192.Common Perquisites and Their Tax Treatment
| Perquisite Type | Taxability | Valuation Method |
|---|---|---|
| Rent-free accommodation (company-owned) | Taxable | 7.5%–15% of salary depending on city population |
| Rent-free accommodation (leased by employer) | Taxable | Lower of actual lease rental or 15% of salary |
| Company car (partly personal use) | Taxable | ₹1,800–₹2,400/month + driver: ₹900/month (up to 1600cc engine) |
| Interest-free or concessional loan | Taxable | Difference between SBI lending rate and actual rate charged |
| Medical reimbursement (beyond ₹15,000/year) | Taxable | Amount exceeding ₹15,000 |
| Free meals at workplace (beyond ₹50/meal) | Taxable | Amount exceeding ₹50 per meal |
| ESOP / Sweat equity shares | Taxable on exercise | FMV on exercise date minus amount paid by employee |
| Group health insurance (employer pays premium) | Not taxable | Exempt under Section 17(2)(vi)(a) |
| Mobile / laptop for official use | Not taxable | Exempt if used for official purposes |
⚡ Pro Tip: ESOP (Employee Stock Option Plan) taxation is one of the most complex perquisite situations. Under Section 17(2)(vi), tax is computed on the fair market value of shares on the date of exercise minus the exercise price. For startups registered with DPIIT, tax on ESOPs is deferred until sale of shares or 5 years from allotment — whichever is earlier. Employers handling ESOPs should ensure this is correctly reflected in TDS computations. Read our detailed guide on TDS provisions under the Income Tax Act for more.
8. Multiple Employers & Mid-Year Job Changes — Form 12B
One of the most common TDS on salary compliance failures occurs when an employee changes jobs mid-year and the new employer is unaware of the salary drawn from the previous employer. This results in the new employer deducting TDS only on their own salary payment — while the employee’s total income for the year is much higher.Form 12B — Declaration to New Employer
Under Rule 26A, when an employee joins a new employer during the financial year, they must furnish details of their previous employment salary and TDS deducted to the new employer via Form 12B. Form 12B contains:- Name, address, and TAN of previous employer
- Period of previous employment during the current FY
- Total gross salary received from previous employer
- Exemptions and deductions allowed by previous employer
- Total TDS deducted and deposited by previous employer
Simultaneous Employment with Two Employers
If an employee works simultaneously for two or more employers (part-time or consulting arrangements classified as salary), they can nominate one employer to deduct TDS on the aggregate salary from both employers. The other employer(s) are informed of this arrangement and refrain from deducting TDS. The details are provided via the same Rule 26A mechanism.
⚠️ Common Mistake: Employees who change jobs frequently assume the new employer will “automatically figure it out.” They do not. If Form 12B is not submitted, the new employer deducts TDS only on their own salary — leading to a significant tax shortfall that the employee must pay (with interest under Section 234B) when filing ITR. Always submit Form 12B within 15 days of joining a new employer.
9. TDS Deposit Due Dates and Challan 281
Timely deposit of TDS on salary into the government treasury is one of the most critical employer obligations under Section 192. TDS must be deposited using Challan ITNS 281 (Challan 281) on the Tax Information Network (TIN) portal or through authorised bank branches.| Month of TDS Deduction | Type of Employer | TDS Deposit Due Date |
|---|---|---|
| April to February (each month) | Non-Government | 7th of the following month |
| March | Non-Government | 30th April |
| All months | Government (Pay & Accounts Office) | Same day as salary payment |
| All months | Government (Cheque mode) | 7th of the following month |
Interest for Late TDS Deposit
If TDS is deducted but deposited late, interest is charged under Section 201(1A):- Failure to deduct TDS: Interest at 1% per month from the date on which TDS was deductible to the date of actual deduction
- Failure to deposit after deduction: Interest at 1.5% per month from the date of deduction to the date of actual deposit
🎯 Expert Insight: Many small employers attempt to correct late TDS deposits by paying the principal TDS and ignoring interest, believing the interest will be “settled later.” This is a mistake. The Income Tax Department’s Traces system automatically computes and tracks interest, which compounds with each quarter if left unpaid. Always pay TDS with interest in the same challan if the deposit is made after the due date. Mentioning “interest on late deposit” in the challan remarks is good practice.
10. Form 24Q — Quarterly TDS Returns for Salary
After deducting and depositing TDS, employers must file quarterly TDS returns in Form 24Q with the Income Tax Department. Form 24Q reconciles the TDS deducted, deposited, and the employee-wise salary breakup for each quarter.Structure of Form 24Q
Form 24Q contains two annexures:- Annexure I — Statement of tax deducted and deposited. Filed for all four quarters. Contains deductor details, challan details (BSR code, date, amount deposited), and deductee-wise TDS summary.
- Annexure II — Employee-wise salary breakup, exemptions, deductions, and tax computation. Filed only for Q4 (January–March quarter). This is the basis for generating Form 16 for each employee.
Due Dates for Form 24Q Filing
| Quarter | Period | Due Date for Filing Form 24Q |
|---|---|---|
| Q1 | April – June 2025 | 31 July 2025 |
| Q2 | July – September 2025 | 31 October 2025 |
| Q3 | October – December 2025 | 31 January 2026 |
| Q4 | January – March 2026 | 31 May 2026 |
Penalty for Late Form 24Q Filing — Section 234E
A late fee of ₹200 per day applies for each day the return remains unfiled beyond the due date. However, the total late fee cannot exceed the total TDS amount for the quarter. Additionally, under Section 271H, a penalty ranging from ₹10,000 to ₹1,00,000 may be levied for furnishing incorrect information in the return.11. Form 16 — TDS Certificate Issuance to Employees
Form 16 is the annual TDS certificate issued by the employer to each employee, confirming the total salary paid and total TDS deducted and deposited during the financial year. It is generated after the Q4 Form 24Q is processed on the TRACES portal.Structure of Form 16
- Part A — Downloaded from the TRACES portal (tdscpc.gov.in) by the employer. Contains employer TAN, employee PAN, quarter-wise TDS deposit details, and government acknowledgement number. This is system-generated and cannot be modified by the employer.
- Part B — Prepared by the employer. Contains detailed salary breakup, HRA exemption calculation, all deductions claimed, tax computation under the chosen regime, and the net tax payable. Part B must match exactly with Annexure II of Form 24Q.
Due Date for Form 16 Issuance
Form 16 must be issued to employees by 15 June 2026 for FY 2025-26. Failure to issue Form 16 on time attracts a penalty of ₹100 per day under Section 272A(2)(g) for each certificate not issued.
⚡ Pro Tip: Employees who resign before the year-end are still entitled to receive Form 16 from their employer for the period of their employment. A common employer misconception is that Form 16 is only issued to employees on the rolls at year-end. Both Part A and Part B of Form 16 must be issued to all employees — past and present — who received salary from the employer during FY 2025-26.
12. Penalties for Section 192 Non-Compliance
The penalty framework for TDS on salary non-compliance is extensive and can expose employers to significant financial liability. Here is a complete reference:Section 201 — Assessee in Default
Employer becomes “assessee in default” for failure to deduct TDS. Must pay the undeducted TDS amount + interest. The employee’s tax liability is not extinguished — the employer remains jointly liable.
Section 201(1A) — Interest on Late Deposit
1% per month from date TDS was deductible to date of deduction. 1.5% per month from date of deduction to date of deposit. Even one day’s delay = one full month’s interest.
Section 234E — Late Filing Fee
₹200 per day for each day Form 24Q is filed after the due date. Total fee cannot exceed the TDS amount for the quarter. Applicable to each quarterly return separately.
Section 271C — Penalty for Non-Deduction
Penalty equal to the amount of TDS that was not deducted. Imposed by the Joint Commissioner of Income Tax. Applies even if the employee has subsequently paid tax directly.
Section 271H — Incorrect TDS Return
Penalty of ₹10,000 to ₹1,00,000 for furnishing incorrect information in Form 24Q — wrong PAN, wrong TDS amount, wrong challan details. Can be levied in addition to 234E late fee.
Section 276B — Prosecution
If TDS deducted is not deposited to the government — imprisonment from 3 months to 7 years with fine. This is the most severe consequence and applies to wilful default by employer.
13. Case Study — Complete Payroll TDS Scenario
Company: Prism Tech Solutions Pvt Ltd, Hyderabad
Prism Tech has 12 employees. Their payroll TDS situation for FY 2025-26 includes three distinct scenarios that illustrate real-world compliance complexity.Scenario A: Mid-Year Salary Increment
Employee Kavya receives ₹80,000/month initially. From October 2025, her salary increases to ₹95,000/month following an appraisal. The employer must recalculate the projected annual salary as: (₹80,000 × 6) + (₹95,000 × 6) = ₹10,50,000. The revised annual tax under the new regime is recalculated and the shortfall TDS for the remaining 6 months is spread proportionately across October to March. This is a standard mid-year adjustment that payroll software handles automatically — but manual payroll processors must track and recompute it.Scenario B: Employee Who Leaves in November 2025
Rahul resigns in November 2025. By then, Prism Tech has deducted ₹24,000 as TDS over 8 months. Rahul must be issued Form 16 (Part A + B) covering April to November 2025 by 15 June 2026 — even though he is no longer with the company. His new employer needs this Form 16 to compute accurate TDS for the remaining year. Prism Tech must also ensure that Rahul’s TDS data is correctly reported in the Q2 and Q3 Form 24Q filings.Scenario C: Employee With Taxable Perquisites
Prism Tech provides Director-level employee Suresh with a company-leased flat at ₹40,000/month rent. As per Rule 3, the perquisite value is the lower of actual rent (₹4,80,000/year) or 15% of salary (15% of ₹18L = ₹2,70,000). Therefore, ₹2,70,000 is added to Suresh’s taxable salary before computing TDS. The employer must compute and include this perquisite valuation in the Form 24Q Annexure II for Q4.
🎯 Expert Insight: Prism Tech’s most common TDS error in previous years was not adjusting TDS when the Q4 bonus was declared in February. The employer paid the bonus in February but did not increase the March TDS deduction to account for the additional income. This resulted in Suresh having a significant tax shortfall when he filed his ITR. The solution: whenever a bonus is declared and paid, immediately recalculate the remaining TDS for the year and adjust the March deduction accordingly.
📌 Key Takeaways — TDS on Salary Section 192 (FY 2025-26)
- No flat TDS rate — Section 192 TDS is calculated based on estimated taxable income and applicable slab rates
- New regime is default — employer must compute TDS under new regime unless employee submits written opt-out
- Form 12BB must be collected in April and proofs verified in January–February each year
- TDS deposit is due by the 7th of the following month (except March — due 30 April)
- Form 24Q is filed quarterly — Q4 Annexure II is the basis for Form 16 generation
- Form 16 must be issued by 15 June 2026 — to all employees including those who resigned
- Employees changing jobs must submit Form 12B to the new employer to avoid TDS shortfall
- Perquisites must be valued per Rule 3 and included in taxable salary for TDS computation
- Missing any due date triggers penalties — ₹200/day (234E), 1.5%/month interest (201(1A)), and in extreme cases, prosecution under Section 276B
- Employees without PAN must be subjected to 20% TDS under Section 206AA
Frequently Asked Questions — TDS on Salary Section 192
Q1. What is TDS on salary under Section 192?
TDS on salary under Section 192 of the Income Tax Act, 1961 is the mechanism by which an employer deducts income tax at source from the employee’s salary every month before payment. The employer estimates the employee’s total taxable annual income, applies applicable slab rates under the chosen tax regime, and divides the resulting annual tax liability equally over the remaining months of the financial year to arrive at the monthly TDS deduction amount.
Q2. What is the TDS rate on salary for FY 2025-26?
There is no single flat TDS rate on salary. TDS under Section 192 is computed at the average rate of income tax applicable to the employee’s estimated annual income. Under the new regime (default), slab rates range from 5% (₹4–8 lakh income) to 30% (above ₹24 lakh). Under the old regime, rates range from 5% (₹2.5–5 lakh) to 30% (above ₹10 lakh). A 4% Health and Education Cess applies on the computed tax.
Q3. When must an employer deposit TDS on salary?
For non-government employers, TDS deducted on salary for April to February must be deposited by the 7th of the following month. TDS for March must be deposited by 30th April of the assessment year. Government employers (Pay and Accounts Office) must deposit on the same day as payment. Late deposit attracts interest at 1.5% per month under Section 201(1A).
Q4. What is Form 12BB and when should an employee submit it?
Form 12BB is the investment declaration statement submitted by an employee to their employer at the start of the financial year (April). It contains declarations of HRA, LTA, home loan interest, and all Chapter VIA deductions the employee plans to claim. The employer uses Form 12BB to estimate taxable income and compute monthly TDS. Actual investment proofs must be submitted to the employer between January and February to reconcile against declarations.
Q5. What is Form 24Q and when is it due?
Form 24Q is the quarterly TDS return that employers must file for TDS deducted on salary. Due dates: Q1 (April–June) by 31 July; Q2 (July–September) by 31 October; Q3 (October–December) by 31 January; Q4 (January–March) by 31 May. Q4 additionally requires Annexure II (employee-wise salary and tax breakup). Late filing attracts ₹200 per day under Section 234E.
Q6. What happens if an employer fails to deduct TDS on salary?
If an employer fails to deduct TDS, they are treated as an “assessee in default” under Section 201. Interest at 1% per month from the date TDS was deductible applies. A penalty equal to the TDS not deducted can be levied under Section 271C. In cases of wilful non-deposit of deducted TDS, prosecution under Section 276B with imprisonment up to 7 years is possible.
Q7. How is TDS calculated when an employee changes jobs mid-year?
When an employee joins a new employer, they must submit Form 12B to the new employer, disclosing the salary received and TDS deducted by the previous employer. The new employer aggregates both salaries to compute total estimated annual income and deducts TDS for the remaining months after crediting TDS already deducted by the previous employer. Failure to submit Form 12B leads to under-deduction and a tax demand at ITR filing time.
Q8. By what date must Form 16 be issued to employees for FY 2025-26?
Form 16 (TDS certificate on salary) must be issued to all employees by 15 June 2026 for FY 2025-26. It must be issued to all employees — including those who resigned during the year. Part A is downloaded from the TRACES portal after Q4 Form 24Q processing. Failure to issue Form 16 on time attracts ₹100 per day penalty under Section 272A(2)(g).
Conclusion
TDS on salary under Section 192 is the backbone of payroll compliance for every employer in India. Unlike most tax provisions, it requires active, month-by-month management — collecting declarations, computing TDS on a unique employee-by-employee basis, depositing on time, filing quarterly returns, and issuing accurate certificates. A single error anywhere in this chain can cascade into interest demands, penalties, employee trust issues, and in extreme cases, prosecution. For FY 2025-26, the shift to the new tax regime as default has added a new layer of complexity. Employers must now proactively verify regime preferences for every employee and ensure that TDS is computed correctly based on each individual’s declaration — not applied uniformly across the payroll. The solution is a robust payroll process built on three pillars: timely data collection (Form 12BB in April, proofs in January), accurate computation (monthly recalculation after salary changes, bonuses, or revised declarations), and timely compliance (deposits by the 7th, Form 24Q every quarter, Form 16 by 15 June). If your organisation handles payroll for more than 10 employees, or if your employee compensation includes perquisites, ESOPs, or multiple income sources, we strongly recommend periodic payroll TDS audits by a qualified Chartered Accountant. You can also explore our related guides on comprehensive TDS provisions under the Income Tax Act, our ITR filing guide for FY 2025-26, and the TDS Rate Chart for all sections to build a complete picture of your organisation’s withholding tax obligations. For any payroll TDS assessment, Form 24Q filing, or Form 16 generation support for FY 2025-26, our expert CA team at ClearTax Advisors is ready to assist.Watch: Step-by-step TDS on salary calculation video — replace this with your YouTube tutorial URL
📞 Need Expert Payroll TDS Support for FY 2025-26?
Our Chartered Accountants at ClearTax Advisors handle end-to-end payroll TDS compliance — Form 12BB review, monthly TDS computation, Challan 281 deposits, Form 24Q filing, and Form 16 generation for businesses across India.
Get Payroll TDS Help Today →Official Resources for Employers
- Income Tax Department of India — incometaxindia.gov.in
- TRACES Portal for TDS Returns and Form 16 — tdscpc.gov.in
- TIN-NSDL for Challan 281 and TDS payment — tin.tin.nsdl.com
Disclaimer: This article is intended for general educational and informational purposes only and does not constitute professional tax, legal, or financial advice. Tax provisions under Section 192 are subject to change through Finance Acts, CBDT circulars, and notifications. All figures, rates, and due dates are based on provisions as applicable for FY 2025-26 (AY 2026-27) as of April 2026. Employers and employees are advised to consult a qualified Chartered Accountant or tax professional for specific compliance guidance applicable to their situation.