CBDT issues circular regarding TDS

The CBDT issues an annual circular under Section 192 of the Income-tax Act explaining TDS on salaries for the financial year. For FY 2026-27, the new tax regime under Section 115BAC is the default. Slabs run from nil up to ₹3 lakh to 30 percent above ₹15 lakh, with a standard deduction of ₹75,000 for salaried persons and a Section 87A rebate up to ₹7 lakh. Employees can opt out using Form 10-IEA and claim old-regime deductions. Employers compute TDS using Form 12BB declarations and file quarterly returns in Form 24Q.

Mayank Wadhera

Published: 10 Dec 2022

Updated: 16 May 2026

4 min read

Every year, the Central Board of Direct Taxes (CBDT) issues a comprehensive circular under Section 192 of the Income-tax Act explaining how employers should compute and deduct tax at source on salaries for the relevant financial year. For FY 2026-27, the circular consolidates the new tax regime as default, the revised slabs, standard deduction of ₹75,000 for salaried, Section 87A rebate up to ₹7 lakh, and the Form 12BB regime for employee declarations. Here is what every payroll team should encode into their TDS engine.

Scope of CBDT salary TDS circular

The circular is the authoritative reference for employers on Section 192 obligations — when to deduct, at what rates, how to deal with multiple employers, perquisite valuation, declarations from employees, deduction under Chapter VI-A claims, and reporting in Form 24Q. It is binding on revenue officers and provides a safe harbour for employers who follow it. The 2026 circular reaffirms the new regime as default and clarifies the procedure when an employee opts out via Form 10-IEA.

New regime as default under Section 115BAC

Slabs: NIL up to ₹3 lakh, 5% from ₹3-7 lakh, 10% from ₹7-10 lakh, 15% from ₹10-12 lakh, 20% from ₹12-15 lakh, 30% above ₹15 lakh (subject to any Union Budget 2026 revisions).
Standard deduction of ₹75,000 for salaried and pensioners under the new regime.
Section 87A rebate up to ₹7 lakh of total income — effectively making income up to ₹7 lakh tax-free under the new regime.
Most exemptions (HRA, LTA, Section 80C, 80D etc.) are not available under the new regime — except 80CCD(2) employer NPS contribution and 80JJAA.

If the employee opts out into the old regime

The employee must file Form 10-IEA on the e-filing portal and intimate the employer at the start of the FY. The old regime preserves HRA, LTA, standard deduction of ₹50,000, and Chapter VI-A deductions (80C up to ₹1.5 lakh, 80D, 80E, etc.). Employers can rely on Form 12BB declarations and proof submissions for these exemptions/deductions when computing TDS.

Form 12BB and proof submission

Employee declares estimated income and proposed investments at the beginning of FY.
Employer computes monthly TDS based on this estimate.
By 15 January (or as the employer's policy dictates), employee submits proof of actual investments and rent receipts under Form 12BB.
Employer revises TDS for January, February, and March to align with actual proof submitted.
Annual return in Form 24Q reports salary, deductions, and TDS at year-end.

Perquisite valuation reminders

Rent-free accommodation valuation uses CBDT's revised population-based slabs and lease-rent comparison.
Motor car perquisite at ₹1,800 / ₹2,400 plus ₹900 if driver — for cars up to/above 1,600cc.
ESOPs taxed as perquisite at exercise; eligible start-ups get deferment up to 48 months under Section 17(2)(vi).
Employer's contribution to PF, NPS, and superannuation in aggregate above ₹7.5 lakh per year taxable as perquisite.

Other compliance reminders

Quarterly TDS returns in Form 24Q must be filed within the prescribed timelines (15 July, 15 October, 15 January, 31 May for Q4). Form 16 must be issued to employees by 15 June following the FY. Penalty for late TDS payment is 1.5% per month under Section 201(1A); late filing of return attracts ₹200 per day under Section 234E. Mismatches between Form 24Q and Form 26AS must be corrected promptly to avoid TDS credit issues for employees.

Reconciling Form 24Q with Form 26AS

One area where employers consistently invite trouble is the reconciliation of Form 24Q quarterly returns with Form 26AS — the consolidated tax credit statement of each employee. Mismatches arise from wrong PAN entry, incorrect TDS amount, wrong section code, or missing challan-deduction linkage. Run a monthly reconciliation: total TDS deducted in payroll vs total deposited via challan vs total reported in 24Q vs total reflected in 26AS for each employee. Use the TRACES portal to pull the 26AS preview after each quarterly filing and resolve mismatches within 15 days. Common fixes: file a correction return in 24Q-C for PAN or amount errors, raise a challan correction (OLTAS) for wrong AY or section, and update the employee through email so they don't panic during their personal ITR filing. Issuing Form 16 with figures matching 26AS is the gold standard — employees can then file their ITR confidently and the employer avoids Section 201 notices for short-deduction or non-deposit.

Conclusion

The CBDT circular on TDS on salaries for FY 2026-27 is non-negotiable reading for every CFO, HR head, and payroll vendor. Treat it as the one source of truth for monthly deductions, year-end reconciliations, and Form 24Q filings. A clean payroll TDS process keeps employees happy and the company out of Section 201 disputes.

Frequently Asked Questions

Is the new tax regime the default for TDS on salaries in FY 2026-27?

Yes. Under Section 115BAC, the new tax regime is the default for FY 2026-27. Employers must deduct TDS under the new regime unless the employee specifically opts into the old regime by submitting Form 10-IEA and informing the employer at the start of the year or before TDS is computed.

What is the standard deduction for salaried employees in FY 2026-27?

Salaried employees and pensioners are entitled to a standard deduction of ₹75,000 under the new tax regime for FY 2026-27. Under the old regime, the standard deduction remains ₹50,000. Employers apply this automatically when computing TDS under Section 192.

What is Form 12BB used for?

Form 12BB is the statement an employee submits to the employer declaring claims for HRA, LTA, interest on housing loan, and Chapter VI-A deductions for the purpose of TDS computation under Section 192. Proof must be submitted before the employer closes the year-end TDS computation, typically by 15 January.

When must Form 16 be issued to employees?

Form 16, the certificate of TDS on salary, must be issued by the employer to every employee by 15 June following the end of the financial year. For FY 2026-27, Form 16 must reach employees by 15 June 2027. Late issuance attracts a penalty of ₹100 per day under Section 272A(2)(g).