Salary TDS Under the Income-tax Act 2025
The Income-tax Act 2025 came into force on 1 April 2026 and renumbered every section. Salary withholding moved from section 192 to section 392. The rest of the withholding provisions collapsed into a single section 393. Both Acts are live at once, because FY 2025-26 returns are still filed under the 1961 Act while payroll for tax year 2026-27 runs under the 2025 Act.
- Which Act governs which period, and why payroll has to hold both
- Slab rates, standard deduction and the rebate for both years
- The renumbered forms, and the one item we could not confirm
- The deposit and quarterly statement calendar
Two Acts, one payroll team
The Income-tax Act 2025 received assent on 21 August 2025 and came into force on 1 April 2026. The Income-tax Rules 2026 followed, notified on 20 March 2026 and effective from the same date. The Act replaces the paired concepts of previous year and assessment year with a single tax year.
For payroll the dividing line is clean and it is not the financial year of the income. Withholding follows the date of payment or credit. A sum paid or credited up to 31 March 2026 is withheld under the 1961 Act. A sum paid or credited from 1 April 2026 is withheld under the 2025 Act, and the deductor has to quote the new section codes or the portal will not accept the statement.
| Concept | Income-tax Act 1961 | Income-tax Act 2025 |
|---|---|---|
| Salary withholding | Section 192 | Section 392 |
| All other withholding | Sections 193 to 196D | Section 393, a single table-driven provision with numeric payment codes |
| Tax collection at source | Section 206C | Section 394 |
| No permanent account number | Section 206AA, 20 per cent | Retained. The higher-rate provisions for non-filers, sections 206AB and 206CCA, were omitted with effect from 1 April 2025, so filer-status checking has gone. |
| Period concept | Previous year and assessment year | Tax year |
Slabs, deduction and rebate for both years
The rates did not move. The same slabs apply for FY 2025-26 under the 1961 Act and for tax year 2026-27 under the 2025 Act, and Budget 2026 made no significant change.
| Total income | Rate under the default regime |
|---|---|
| Up to ₹4,00,000 | Nil |
| ₹4,00,001 to ₹8,00,000 | 5 per cent |
| ₹8,00,001 to ₹12,00,000 | 10 per cent |
| ₹12,00,001 to ₹16,00,000 | 15 per cent |
| ₹16,00,001 to ₹20,00,000 | 20 per cent |
| ₹20,00,001 to ₹24,00,000 | 25 per cent |
| Above ₹24,00,000 | 30 per cent |
| Item | Default regime | Old regime, on election |
|---|---|---|
| Standard deduction on salary | ₹75,000 | ₹50,000 |
| Rebate | Up to ₹60,000 where total income does not exceed ₹12,00,000, with marginal relief. For a salaried employee the effective nil-tax point is ₹12.75 lakh. | ₹12,500 where total income does not exceed ₹5,00,000 |
| Surcharge above ₹5 crore | Capped at 25 per cent | 37 per cent |
| Cess | 4 per cent | 4 per cent |
Surcharge below that: 10 per cent above ₹50 lakh, 15 per cent above ₹1 crore, 25 per cent above ₹2 crore, with marginal relief at each threshold. The rebate does not apply to income taxed at special rates.
The default regime is the default
An employee who wants the old regime must affirmatively elect it, and payroll has to capture that election rather than assume it. Where no election is made, the default regime applies for withholding purposes. This has been the position since FY 2023-24 and it is still the most common source of a mismatch between what payroll deducted and what the employee expected.
Renumbered, and where each new form comes from
The Income-tax Rules 2026 renumbered the forms as comprehensively as the Act renumbered the sections. This is the change most likely to catch a payroll team out, because form numbers are embedded in software, templates and employee communications.
| Purpose | Old form | New form |
|---|---|---|
| Salary tax certificate to the employee | Form 16 | Form 130 |
| Certificate for other withholding | Form 16A | Form 131 |
| Quarterly salary withholding statement | Form 24Q | Form 138 |
| Quarterly statement, other than salary | Form 26Q | Form 140 |
| Quarterly statement, non-resident payments | Form 27Q | Form 144 |
| Quarterly tax collection statement | Form 27EQ | Form 143 |
| Annual tax statement | Form 26AS | Form 168 |
| Employee declaration of deductions | Form 12BB | Form 124 |
The two that matter most to a payroll team carry rule references you can cite. Form 130 replaces Form 16 as the annual salary withholding certificate, under rule 215(1), Table, serial number 1 of the Income-tax Rules 2026. Form 138 replaces Form 24Q as the quarterly salary withholding statement, under rule 219(1), Table, serial number 1. Form 138 was the prescribed and portal-enabled form for the quarter ended 30 June 2026, filed by 31 July 2026, so this is settled practice rather than a mapping on paper. Form 24Q survived for the fourth quarter of FY 2025-26, due 31 May 2026, because that quarter belongs to the old Act.
Deposit and statement dates
| Obligation | Due date |
|---|---|
| Deposit of tax deducted | Seventh of the following month. For March, 30 April. |
| Quarterly statement, quarter one | 31 July |
| Quarterly statement, quarter two | 31 October |
| Quarterly statement, quarter three | 31 January |
| Quarterly statement, quarter four | 31 May |
| Salary tax certificate to employees | 15 June following the tax year, under rule 215(1), Table, serial number 1 of the Income-tax Rules 2026. For tax year 2026-27 that is 15 June 2027. |
Tax collection statements were pulled forward from 15 July to 31 July, so all four quarterly dates are now uniform.
Leave encashment and the gratuity exemption
The leave encashment exemption on retirement for a non-government employee is ₹25 lakh, raised from ₹3 lakh with effect from 1 April 2023 and unchanged under the 2025 Act. Section 19(2)(f) makes it a lifetime aggregate across employers: leave encashment already exempted or deducted reduces what is left, which is the point most often missed in a full and final settlement. The gratuity exemption is ₹20 lakh, also a lifetime aggregate. Both are dealt with in guide 2.
Where to go next
Payroll Services
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Send an enquiry
If your payroll software still emits Form 16 and Form 24Q for tax year 2026-27, that is the thing to raise with us first. We can tell you what has to change and what can wait.
This page is general information, not professional advice. Indian payroll law changed more between November 2025 and June 2026 than in the twenty years before it. The four Labour Codes commenced on 21 November 2025, central rules under them followed in May 2026, and the Income-tax Act 2025 replaced the 1961 Act on 1 April 2026. State rules under the Codes are still being notified and differ by state, so the correct answer for one employer is not automatically the correct answer for another. Take professional advice before acting on anything on this page. We are happy to be that adviser, but we do not act on a web page, ours or anyone else's, without one.