Refreshed guide to the CBDT circular on salary TDS for FY 2023-24 — new regime default, Section 87A rebate, standard deduction and what holds in 2026.
Every year the CBDT issues a comprehensive circular on TDS from salaries under Section 192. The FY 2023-24 circular was particularly important because it captured the shift to the new tax regime as the default option. As we operate in FY 2026-27, that framework has matured further under Finance Act 2026, but the structure laid down in the 2023-24 circular continues to guide employers on declarations, regime choice and computation.
Why the FY 2023-24 Circular Was a Turning Point
The 2023-24 salary TDS circular operationalised the new tax regime under Section 115BAC as the default. Employers were required to ask each employee to choose between the old regime and the new regime, with the new regime applying automatically if no choice was communicated. It also explained the revised slab rates, the rebate under Section 87A extended up to ₹7 lakh, and the standard deduction of ₹50,000 extended to the new regime.
Key Takeaways That Still Apply in 2026
- New tax regime under Section 115BAC remains the default — employees must opt out in writing to use the old regime
- Standard deduction for salaried employees increased to ₹75,000 under the new regime for FY 2025-26 onwards
- Rebate under Section 87A available up to taxable income of ₹7 lakh under the new regime
- Basic exemption limit of ₹3 lakh under the new regime
- Employer must collect Form 12BB along with proof of deductions claimed
- Quarterly TDS returns in Form 24Q with annexures for the final quarter
Salary TDS Computation Mechanics
Section 192 requires the employer to estimate the employee's total income from salary for the year and deduct tax at the average rate applicable on that estimated income. The computation must reconsider regime choice, declared house property income or loss (subject to the ₹2 lakh set-off cap for self-occupied property), eligible Chapter VI-A deductions (only under the old regime) and any income from other sources reported by the employee.
What Has Changed Since the FY 2023-24 Circular
Finance Act 2026 has further refined the new regime by tightening surcharge rates above ₹2 crore, expanding the standard deduction to ₹75,000, and aligning TDS, TCS and AIS data with annual return prefilling. The CBDT now publishes an updated salary TDS circular each year — for FY 2026-27, the prevailing circular notified by CBDT must be the working document, but the structure and disclosure approach largely mirrors what the 2023-24 circular established.
Employer Best Practices for Salary TDS in 2026
- Collect regime choice declarations at the start of the financial year
- Recompute TDS at the end of each quarter using actual investment and rent proofs
- Maintain Form 12BB and supporting documents in a digital, retrievable archive
- Issue Form 16 by 15 June 2027 for FY 2026-27 and reconcile with AIS and Form 26AS
- Train payroll teams on the latest CBDT circular before April each year
Treatment of Perquisites and Allowances
The 2023-24 circular reinforced that perquisites — rent-free or concessional accommodation, motor car, ESOPs, interest-free or concessional loans — must be valued under Rule 3 and included in salary for TDS. Specific exemptions like HRA under Section 10(13A), LTA under Section 10(5) and gratuity are available only under the old regime. In 2026, ESOP perquisite valuation continues to follow the FMV rules under Rule 3(8), with eligible start-ups enjoying deferment of TDS on ESOPs under Section 192(1C) for up to 48 months from the end of the year of exercise.
Practical Form 16 Issues Employers Should Watch
- Mismatch between Part A (TRACES) and Part B (employer-prepared) totals
- Salary breakup not aligning with payroll system or salary slips
- Wrong regime indicator on Form 16, especially for joiners and leavers during the year
- Missing or incorrect PAN, leading to higher TDS under Section 206AA
- House property loss claims beyond ₹2 lakh cap for self-occupied property
Multi-Employer and Mid-Year Joining Scenarios
When an employee joins a new employer mid-year, the new employer can consider the previous salary and TDS through Form 12B furnished by the employee. Without Form 12B, each employer computes TDS independently on its own salary component, leading to under-deduction and a balance liability at year-end. Employers should formally request Form 12B from every new joiner along with Form 12BB, and explicitly reflect previous TDS, exemptions and deductions in the Form 16 of the current employer to keep AIS reconciliation clean for the employee.
Conclusion
The CBDT circular on TDS for salaries in FY 2023-24 was the foundational reference for the new tax regime defaults and the modern Form 16 ecosystem. In FY 2026-27, employers should read the latest CBDT salary TDS circular alongside the structure set out in 2023-24. Strong documentation, timely regime declarations and disciplined quarterly recomputations keep employers compliant and employees free of return-time surprises.
