Salary TDS & Income Tax

Tax Deduction at Source (TDS) on salary is the mechanism by which an employer deducts income tax from an employee's salary at the time of payment and deposits it with the government on the employee's behalf. This applies to employers who are responsible for paying salary income.

The governing law for salary TDS has changed with the introduction of the Income-tax Act, 2025, which consolidates and replaces the Income-tax Act, 1961 for salary paid from 1 April 2026.

For salary paid up to 31 March 2026, the governing provision was Section 192 of the Income-tax Act, 1961. Under Section 192:

• Employers were required to estimate the employee's total taxable salary for the year
• TDS was deducted proportionately across pay periods
• The computation considered both the Old Regime and the New Regime (115BAC) applicable at the time
• A standard deduction, certain exemptions, investment declarations and HRA claims applied

Section 192 of the 1961 Act remains relevant for understanding historical payroll records and for salary periods that fall within the 1961 Act's applicability.

The Income-tax Act, 2025 is the new consolidated income-tax legislation for India. It applies to income and financial years beginning on or after 1 April 2026.

The 2025 Act retains the fundamental structure of income-tax law while consolidating, simplifying and renumbering provisions. Payroll professionals and software systems should refer to the official text and notifications for authoritative guidance on the transition.

For salary paid from 1 April 2026, the relevant provision is Section 392(1) of the Income-tax Act, 2025. The provision requires the person responsible for paying salary to deduct tax at source in the manner prescribed.

The core obligation — employer deduction of tax from salary, estimated on annual basis and spread across pay periods — continues under the 2025 Act with updated structure and references. Specific rates, slab thresholds, deductions and rebates applicable for Tax Year 2026–27 should be verified from official Income Tax Department notifications and circulars.

Precision Payroll salary calculators offer an option to estimate under the New Tax Regime (default for FY 2025–26/2026–27) or the Old Tax Regime, where applicable. Key assumptions that affect the estimate:

• Chosen tax regime
• Standard deduction applicable to the period
• Salary structure (Basic, HRA, special allowance etc.)
• Section 87A rebate threshold for the applicable year
• Professional Tax (state-specific)
• PF contribution where included
• Variable pay/bonus included in the estimate

These assumptions are simplified for estimation purposes and may not reflect your actual tax liability. Individual circumstances — investment declarations, HRA exemption, home loan interest, 80C/80D claims (Old Regime) — can significantly affect the result.

Payroll software and HR systems processing salary from April 2026 should:

• Reference Section 392 of the Income-tax Act, 2025 rather than Section 192 of the 1961 Act
• Update slab rates, standard deduction amounts and rebate thresholds for Tax Year 2026–27
• Verify TDS return forms and challan references with the official Income Tax Department
• Ensure Form 16/TDS certificates reflect current statutory references

ENGINE REVIEW NOTE: The Precision Payroll salary-calculator engine currently uses simplified TDS estimates for illustration. If your payroll system requires precise TDS calculation conforming to Section 392, verify against official CBDT circulars and use a certified payroll solution for compliance filing.

Precision Payroll salary calculators do not:

• File TDS returns or deposit tax with authorities
• Generate government-certified Form 16 or Form 12BA
• Calculate individual investment/deduction declarations under Section 192 or 392
• Account for mid-year joining, perquisites, ESOPs or complex salary restructuring
• Certify or guarantee tax liability

Use these calculators for planning and estimation only. For compliance filing, use a certified payroll software or consult a tax professional.