TDS on Salary — Section 192 with New Tax Regime Slabs FY 2025-26

Section 192 of the Income Tax Act 1961 places a statutory obligation on every employer to deduct income tax at source on salary paid to employees. Unlike all other TDS sections that prescribe a fixed percentage rate, Section 192 does not specify any single rate. Instead, the employer must estimate each employee's total taxable income for the full financial year and compute income tax at applicable slab rates, then deduct this computed tax proportionately across the remaining months of the year.nnThe term employer under Section 192 is defined broadly and includes any person responsible for paying salary — companies, partnership firms, LLPs, government departments, trusts, educational institutions, hospitals, and even individual employers who engage domestic staff. Salary for TDS purposes is comprehensive: basic pay, dearness allowance, all taxable allowances, commission, bonus, taxable perquisites valued under Rule 3 such as company car and rent-free accommodation, ESOPs at exercise, leave encashment during service, gratuity received during service, and pension — subject to applicable exemptions under Section 10 of the Act.nnFor FY 2025-26, the employer's starting point is determining which tax regime the employee has opted for. The new tax regime under Section 115BAC is the statutory default. If the employee has not submitted Form 12BB declaring their intent to opt for the old regime, the employer must compute TDS using new regime slab rates with no Chapter VI-A deductions. The employee retains the right to make the final regime choice when filing their personal ITR, at which point they can choose either regime regardless of what was communicated to the employer during the year.

The new and old tax regimes for FY 2025-26 differ significantly in slab rates and available deductions. The new regime offers lower rates across the income spectrum but eliminates most exemptions and deductions including HRA, LTA, Section 80C, Section 80D, and home loan interest under Section 24(b). The only deductions available under the new regime for salaried employees are the standard deduction of Rs.75,000 and the employer's NPS contribution under Section 80CCD(2).nnThe old regime retains the pre-2020 slab structure with higher marginal rates but permits all Chapter VI-A deductions and exemptions. For an employee with significant deductions — PPF, ELSS, health insurance, home loan interest, and HRA — the old regime can result in lower tax liability. The general breakeven point is approximately Rs.3.75 lakh in combined deductions for someone at the 30% slab: if deductions exceed this amount, the old regime is more beneficial; if below, the new regime typically yields lower tax.nnThe most significant enhancement for FY 2025-26 is the Section 87A rebate under the new regime raised to Rs.60,000 for income up to Rs.12 lakh, effectively eliminating all tax on such income. Combined with the standard deduction of Rs.75,000, a salaried employee earning up to Rs.12,75,000 gross pays zero income tax under the new regime. This makes the new regime the clear winner for most middle-income salaried employees who cannot match Rs.3.75 lakh in old regime deductions.

The employer's TDS computation process follows a structured step-by-step methodology applied at the beginning of each financial year and updated whenever employee income or declared deductions change. The process begins with collecting Form 12BB from all employees who wish to opt for the old regime and declare deductions that should reduce their TDS base. Without Form 12BB, the employer defaults to the new regime.nnUsing information from Form 12BB or the default new regime, the employer computes estimated annual gross salary including all components — basic, DA, HRA, special allowances, and expected variable pay or bonus. From this, the employer deducts applicable exemptions: HRA exemption under Section 10(13A) for old regime employees, LTA under Section 10(5), standard deduction, and Chapter VI-A deductions as declared in Form 12BB. The result is the estimated annual taxable income.nnThe annual tax on this estimated taxable income is then computed using the applicable regime's slab rates, accounting for the Section 87A rebate where applicable, surcharge for high-income employees, and 4% health and education cess. This annual tax liability is divided by the number of remaining months in the financial year to determine the monthly TDS deduction. Employers must recompute and adjust TDS whenever salary revisions, variable pay, or updated declarations change the estimated annual income — particularly important in the final quarter when year-end bonuses and investment proof submissions alter computations significantly.

Form 12BB is the prescribed declaration form under Rule 26C of the Income Tax Rules 1962, introduced by CBDT Notification No. 30/2016. It is submitted by an employee to their employer at the beginning of each financial year and can be revised once during the year. The form serves two purposes: informing the employer of the opted tax regime, and providing details of all deductions and exemptions the employee plans to claim.nnForm 12BB captures four categories of information. First, HRA exemption details including monthly rent paid, name and address of landlord, and PAN of the landlord if annual rent exceeds Rs.1 lakh. Second, leave travel concession details for travel performed. Third, home loan interest under Section 24(b) including name and address of lender, account number, and interest payable. Fourth, all Chapter VI-A deductions including Section 80C investments by type, Section 80D health insurance, Section 80E education loan interest, and other applicable deductions.nnThe employer collects documentary proof supporting Form 12BB declarations typically in December or January of the financial year. If an employee declares Rs.1.5 lakh under Section 80C but submits only Rs.80,000 in investment proofs, the employer must recompute TDS for remaining months using only the proved amount. This results in higher TDS in February and March to recover the earlier shortfall — a phenomenon that many employees experience as a TDS surge at year-end. Employers must communicate the proof submission deadline clearly to prevent end-of-year surprises for employees.

Form 16 is the mandatory TDS certificate for salary issued under Section 203 of the Income Tax Act. It has two distinct parts with different generation processes. Part A is generated and downloaded exclusively from the TRACES portal at tdscpc.gov.in — it contains the quarterly TDS deducted and deposited summary, carries a unique TRACES certificate number, and bears the employer's digital signature. Part A cannot be prepared independently by the employer and must be obtained from TRACES only after quarterly Form 24Q returns are filed and processed.nnPart B is prepared by the employer and contains the complete salary computation: gross salary, all Section 10 exemptions, standard deduction, balance taxable salary, deductions under Chapter VI-A as proved and allowed, total taxable income, tax computed, Section 87A rebate, surcharge, cess, total tax payable, and TDS actually deducted. Part B must reconcile exactly with the monthly TDS computations carried out during the year.nnForm 16 must be issued by 15 June of the assessment year — for FY 2025-26, by 15 June 2026. Failure to issue by this date attracts Rs.100 per day per certificate penalty under Section 272A(2)(g). For employees who changed jobs during FY 2025-26, each employer issues a separate Form 16 covering their period of employment. The new employer must have obtained Form 12B from the employee to account for prior employer salary and TDS — both Form 16 certificates together are needed for the employee to file ITR accurately.