Salary TDS Under Section 392 for Tax Year 2026-27: Employer Calculation and Tax Regime Declarations

What changes for salary TDS from 1 April 2026?

The Income-tax Act, 2025 applies to salary paid on or after 1 April 2026. Section 392 covers tax deducted at source (TDS) on salary, replacing Section 192 of the Income-tax Act, 1961 for payments governed by the new Act.

Tax Year 2026-27 runs from 1 April 2026 to 31 March 2027. The new Act uses “tax year” instead of “previous year” and “assessment year.” For salary TDS, the applicable law depends on the payment date:

For example, salary paid on 31 March 2026 is generally covered by the 1961 Act. Salary paid on 1 April 2026 or later is covered by the 2025 Act, even if it relates to work done earlier.

The basic payroll method remains familiar: the employer estimates the employee’s taxable salary for the tax year, calculates tax using the applicable rates, and deducts it from salary payments. The new Act also sets out how specified information from the employee—such as salary from another employer, other income, eligible house-property loss and TDS already deducted—may be considered.

See TaxClear’s Form 130 guide for the new salary TDS certificate. Employers report salary TDS through Form 138, the quarterly salary TDS statement.

Who must deduct salary TDS?

A person responsible for paying income taxable under the head “Salaries” must deduct tax when paying it. This may be a company, firm, government body or another employer. Section 392 requires the employer to calculate withholding at the average tax rate for the tax year on the employee’s estimated salary income. It is not a flat TDS percentage applied to every monthly payment.

The estimate should reflect expected salary for the full tax year, including taxable allowances, bonuses, commissions, benefits and perquisites. The employer calculates the expected tax and spreads deductions across salary payments. TDS already deducted during the year must be considered when calculating the remaining amount.

TDS is a payment towards the employee’s final tax liability. It does not determine the final amount payable or refundable when the employee files a return.

How employers estimate salary TDS

A practical payroll calculation generally follows these steps:

1. Estimate salary for the full tax year. Include expected salary, taxable allowances, bonus, commission, perquisites and other salary components.
2. Apply eligible exemptions and deductions. Use reliefs available under the employee’s selected regime and the information or evidence required for payroll.
3. Consider other income and TDS information. An employee may give prescribed details of salary from another employer, other taxable income, eligible house-property loss and TDS or TCS already deducted.
4. Calculate estimated tax. Apply the rates for the employee’s regime and tax year, along with any applicable rebate, surcharge and cess.
5. Subtract tax already deducted or paid. This may include salary TDS deducted by a previous employer and other eligible tax credits reported to the current employer.
6. Deduct the balance through payroll. The employer generally spreads the remaining estimated tax over salary payments left in the year. Later deductions can be adjusted if the estimate changes.

A salary revision, bonus, change in benefits, new declaration or change of employer can alter projected income and monthly TDS.

Example: estimating monthly TDS

Suppose an employee expects salary income of ₹18 lakh in Tax Year 2026-27, chooses the default new tax regime, has no other income or special-rate income, and is eligible for the ₹75,000 standard deduction. Estimated taxable income is ₹17.25 lakh.

Using the new-regime slabs, estimated income tax before cess is ₹1,45,000. Adding 4% health and education cess gives estimated tax of ₹1,50,800. If salary is paid in 12 equal instalments and no TDS has yet been deducted, the employer might initially deduct about ₹12,567 per month.

This is an illustration, not a fixed monthly amount. Actual payroll may differ because of salary timing, bonus, perquisites, joining or leaving mid-year, other income and TDS, rebate eligibility, surcharge or a revised estimate.

Tax regime declarations: what employees should know

For eligible individuals, the new tax regime under Section 202 is the default for Tax Year 2026-27. An employee who wants payroll TDS calculated under the old regime should intimate the employer during the year using the employer’s process.

If the employee does not intimate a different choice, the employer is expected to calculate TDS under the default new regime. The employer may set a payroll deadline and declaration format. Submit the choice early enough for payroll to use it, especially when starting a new job or changing regimes.

The choice communicated to the employer is for calculating TDS. It is not, by itself, the employee’s formal tax-regime option for the income-tax return. The employee must separately follow the applicable return-filing rules. Employees with business or professional income may face additional restrictions and prescribed requirements when opting out of the default regime.

What should employees compare?

The old regime may allow more exemptions and deductions when the employee qualifies and has the required evidence. The new regime has different rates and fewer deductions, while permitting certain specified deductions and exemptions. Compare both using actual salary components and eligible claims.

This is a summary, not a complete list. For Tax Year 2026-27, declarations should refer to the Income-tax Act, 2025 and the Income-tax Rules, 2026. Check corresponding provisions instead of copying old section references.

What forms and information are used?

The Income-tax Rules, 2026 prescribe forms for information used in salary TDS calculations. They serve different purposes:

• Form 122 allows an employee to provide specified information relevant to salary TDS, including salary from another employer, income under other heads, house-property loss and TDS or TCS already deducted.
• Form 124 records particulars and evidence for specified claims used to estimate income or calculate salary TDS. Covered claims include house rent allowance, leave travel concession or assistance, interest deduction under the house-property head and eligible Chapter VIII deductions.
• Form 130 is the salary TDS certificate for the tax year under the new form framework.

An employer may also use an internal payroll declaration to record an employee’s intended regime or initial estimates. Check whether it is separate from prescribed forms and from the option required when filing the return.

For HRA, the rules may require landlord information, including PAN where aggregate rent paid during the tax year exceeds ₹1 lakh. Leave travel claims may require evidence of expenditure. Lender details are prescribed for a house-property interest claim, and investment or expenditure records may be required for Chapter VIII deductions.

A declaration does not make an ineligible claim allowable. Employees should provide accurate information and keep supporting documents. Employers should apply the relevant limits and conditions rather than treating a proposed investment declaration as proof that an investment was made.

Reporting income and tax from other sources

Form 122 can be useful when an employee changes jobs during the tax year and wants the current employer to consider salary and TDS from the previous employer. The prescribed information may also include other taxable income, such as interest, and TDS or TCS credits for the tax year.

The rules specifically cover house-property loss. Other losses should not automatically be assumed to reduce the salary TDS estimate. Provide previous-employer salary and TDS details promptly; without them, the current employer may not include them in its payroll estimate.

If an employee has significant income outside payroll, such as capital gains or substantial interest, salary TDS may not cover the total tax due. Track the overall tax position and pay any additional tax required under the applicable rules.

Tax rates and rebate for Tax Year 2026-27

The new-regime slab rates for Tax Year 2026-27 are:

These are marginal rates: each rate applies to income within that slab, not to all income once a slab is crossed. Old-regime slabs differ and may depend on age and residential status. The calculation must also account for any applicable rebate, surcharge and 4% health and education cess.

A resident individual may qualify for a rebate under the new regime if total income does not exceed the applicable limit. The rebate can be up to ₹60,000 where conditions are met. Income taxed at special rates can affect the result. Employers should not assume every employee below a stated income figure will have no tax in all circumstances.

Employees with multiple income sources, special-rate income, substantial deductions or a mid-year change can compare regimes using the Income Tax Department’s current calculator.

Changing jobs, bonus and mid-year corrections

A job change can create gaps or overlap in salary reporting. Give the new employer the previous employer’s salary, TDS and relevant claim information. A payslip from the new employer alone may not show total salary income for the tax year.

Bonus, arrears, commission and taxable benefits can increase estimated annual salary. If payroll learns of a material change, it may update the estimate and adjust later deductions. Section 392 permits an employer to increase or reduce TDS during the tax year to adjust an earlier excess deduction or shortfall.

Review payslips after a declaration is processed. If TDS appears too low or high, contact payroll promptly. The longer an adjustment is delayed, the fewer salary payments remain to spread a shortfall across.

Employer records, deposits and salary TDS reporting

Employers should maintain a calculation trail showing estimated salary, regime used, claims considered, tax computation, TDS already deducted and adjustments. Retain employee declarations and supporting evidence under applicable record-keeping procedures.

Salary TDS must be deposited with the Government and reported in the prescribed statement. Form 138 is the quarterly statement for salary TDS. Its due dates are:

Use the current form, utility and deadlines. Employees can compare salary and TDS in Form 130 with payslips and tax records. Check salary, taxable benefits and TDS credits. The certificate supports reconciliation but does not replace checking figures in the return.

Common mistakes to avoid

• Treating Section 392 as a flat-rate deduction rather than an annual estimate followed by payroll withholding.
• Using the old Act’s salary TDS provision for salary paid from 1 April 2026.
• Assuming payroll regime intimation completes the return election.
• Claiming exemptions or deductions unavailable under the selected regime.
• Copying old section numbers or forms without checking the new Act and Rules.
• Failing to provide salary and TDS details from a previous employer.
• Assuming all losses can be set off when calculating salary TDS.
• Treating salary TDS as the final tax payable when there is investment, rental or other income.

Frequently asked questions

Does Section 392 apply to salary paid in March 2026?

Salary paid on or before 31 March 2026 is generally governed by the Income-tax Act, 1961. Salary paid on or after 1 April 2026 is governed by the Income-tax Act, 2025, including Section 392.

Is the new tax regime the default for salary TDS in Tax Year 2026-27?

Yes, for eligible taxpayers the new regime under Section 202 is the default. An employee who wants TDS calculated under the old regime should intimate the employer during the year.

Does an employer’s regime declaration decide the regime for my return?

No. The employer uses the declaration to calculate TDS. The employee must separately follow applicable rules for choosing a regime when filing the return. Business or professional income may affect available options.

Can my employer consider income from a previous job?

An employee may provide prescribed details of salary and TDS from another employer, including through Form 122. Give the current employer accurate information and supporting records.

Can the employer adjust TDS if too little was deducted earlier?

The employer may increase or reduce deductions during the tax year to adjust an earlier excess or shortfall. Inform payroll when income or claims change.

Does salary TDS cover tax on capital gains or interest?

Not necessarily. The employee may provide eligible details of other income and TDS, but payroll withholding may not cover the final liability. Check total income and tax credits when preparing the return.