TDS on salary under the new tax regime

TDS on salary under Section 192 is deducted at the employee's average rate of income tax, computed on the estimated annual salary under the new tax regime by default, unless the employee opts for the old regime. The employer applies the Rs.75,000 standard deduction and divides the annual tax across the months.

The average-rate method

Section 192 does not have a fixed rate. The employer estimates the employee's annual taxable salary, computes the tax on it (under the chosen regime), and deducts 1/12th of that annual tax each month (the average rate). As salary or declarations change, the monthly TDS is re-balanced.

New regime as default

Since the new regime is the default, the employer computes salary TDS under it unless the employee specifically intimates a choice of the old regime. Under the new regime, the employer allows the Rs.75,000 standard deduction and the employer's NPS contribution under 80CCD(2), but not 80C, HRA, LTA or home-loan interest. See old vs new regime.

Employee declarations

• The employee declares the chosen regime; absent a declaration, the new regime applies.
• For the old regime, the employee submits proof of deductions (80C, HRA rent receipts, home-loan interest) for the employer to consider.
• Other income and TDS can be reported to the employer in Form 12BB.

Compliance

• Deposit salary TDS by the 7th of the next month (April for March).
• File the quarterly Form 24Q; issue Form 16 by 15 June.
• Under the new Act 2025, salary TDS moves to Section 392.
• Compute the employee's tax with the Income Tax Calculator.

Worked example: monthly TDS on a Rs.15 lakh CTC

An employee earns a gross salary of Rs.15,00,000 for FY 2026-27 and stays in the default new regime. Taxable salary = 15,00,000 − 75,000 (standard deduction) = Rs.14,25,000. Tax: nil up to Rs.4L, 5% on 4-8L (Rs.20,000), 10% on 8-12L (Rs.40,000), 15% on 12-14.25L (Rs.33,750) = Rs.93,750; plus 4% cess = Rs.97,500. Monthly TDS under Section 192: Rs.8,125.

Add a Rs.2,00,000 employer NPS contribution under 80CCD(2) (deductible in the new regime up to 14% of basic) and the taxable base drops accordingly — one of the few levers left in the default regime, alongside gratuity and leave-encashment exemptions at exit.

Employer obligations through the year

• Regime declaration: collect each employee's intended regime at the start of the year; absent a declaration, deduct per the new regime. The employee's final choice at return-filing can differ.
• Other income: employees may declare other income (interest, rent) and TDS/TCS credits in Form 12BAA for aggregation in salary TDS — the FY 2024-25 mechanism that lets TCS on LRS or car purchases reduce salary TDS rather than wait for refunds.
• Perquisite valuation: run Rule 3 valuations (car, accommodation, ESOPs) into the monthly computation, not as a March surprise; ESOP perquisite tax for eligible startups can be deferred under Section 80-IAC conditions.
• Evidence collection: Form 12BB with proofs by January for old-regime claimants (HRA rent receipts, landlord PAN above Rs.1 lakh annual rent, loan certificates).
• Certificates and returns: quarterly 24Q, annual Form 16 by 15 June, with Part B reflecting the actual regime applied.

Mid-year events that break the computation

Job changes are the classic under-deduction source: each employer applies the slabs and standard deduction independently, so an employee earning Rs.8L at each of two employers pays almost no TDS at either but owes real tax at filing — collect the previous employer's income in Form 12B and aggregate. Salary arrears attract relief under Section 89 (Form 10E before filing). Variable pay paid late in the year concentrates TDS in Q4 — annualise early so take-home is stable. From 1 April 2026, salary TDS operates under Section 392 of the Income-tax Act 2025 with unchanged rates; the 87A rebate continues to make income up to Rs.12,75,000 effectively TDS-free for salaried new-regime employees. Verify slab updates at incometax.gov.in.

Quarterly 24Q mechanics and Form 16 accuracy

Salary TDS reporting runs through Form 24Q quarterly, with the Q4 statement carrying the full Annexure-II salary detail that populates Form 16 Part B. Errors here flow straight into employees' pre-filled ITRs — the three recurring ones: perquisites reported net of employee recovery instead of gross with recovery shown, regime flag mismatching the computation actually used, and previous-employer income collected in Form 12B but omitted from Annexure II. Each generates employee-level 143(1) mismatches that land back on payroll as escalations in July.

• Map every earnings/deduction code in the payroll master to its Form 16 field once a year — new allowance codes silently defaulting to "taxable other" (or worse, dropping out) is how Part B goes wrong at scale.
• For employees exercising ESOPs, deposit the perquisite TDS in the month of exercise, and remember the startup deferral applies only to eligible Section 80-IAC companies — most employers must deduct immediately.
• Gratuity and leave encashment at exit: apply the exemption limits (Rs.20 lakh gratuity, Rs.25 lakh leave encashment) in the final settlement computation, not at year-end.