Section 192 — TDS on Salary, Average Rate, Slabs + Form 24Q (FY 2025-26)

📅 IT Act 2025 transition note: The Income-tax Act, 1961 stands repealed effective 1 April 2026 per Section 536 of the Income-tax Act, 2025. Section 192 of the 1961 Act maps to Section 392 of the Income-tax Act, 2025 — the consolidated salary-TDS provision. Slab-based TDS computation, employee declaration mechanics (Form 12BB), Form 16 issuance, and quarterly Form 24Q filing all carry forward substantively unchanged. For FY 2025-26 (last cycle under 1961 Act) deductions quote Section 192; transactions on or after 1 April 2026 must quote Section 392. See the IT Act 2025 transition reference for the full mapping.

What is Section 192? Who is required to deduct?

Section 192 of the Income Tax Act, 1961 governs the deduction of tax at source on income chargeable under the head “Salaries”. It places a statutory obligation on every person paying salary — individual, HUF, partnership firm, LLP, company, cooperative society, or government entity — to deduct income tax at the time of payment.

For Section 192 to apply, a formal employer-employee relationship (a contract of service) must exist. Engagements that are contracts for service — freelance consultants, independent contractors, retainership arrangements — do not classify as salary; payments under those models fall under Section 194J (professional/technical services) or Section 194C (contractor payments) instead.

Every year the CBDT issues a comprehensive circular consolidating the operational rules for salary TDS. The most recent is Circular No. 3/2025 dated 20 February 2025 which covers FY 2024-25 (AY 2025-26). The FY 2025-26 analogous circular is expected around February 2026 — employers should cross-check the procedural details against the new circular when published. The FY 2025-26 substantive changes (slabs, Section 87A rebate, standard deduction confirmation) come from Finance Act 2025.

Average-rate TDS calculation — the core methodology

Unlike flat-rate TDS sections, Section 192 requires the employer to compute tax at the “average rate of income tax”. Because salary, allowances, bonuses, and investment declarations fluctuate during the year, the employer must continuously estimate the employee’s full-year income and distribute the resulting annual tax across remaining months.

The methodology in four steps:

1. Estimate annual gross salary. Multiply current monthly basic + allowances + perquisites by 12, plus confirmed annual bonuses + variable pay. For mid-year joiners, use the proportionate amount for the months remaining.
2. Apply exempt allowances + standard deduction + declared Chapter VI-A investments. Reduce gross salary by the standard deduction (₹50,000 Old / ₹75,000 New), HRA exemption (Section 10(13A)), LTA, professional tax, and Chapter VI-A items the employee has declared via Form 12BB.
3. Compute annual tax liability. Apply the applicable slab rates + Section 87A rebate (if eligible) + surcharge + 4% Health and Education Cess.
4. Derive monthly TDS. Divide the annual liability by 12 (or by remaining months for mid-year joiners) to get the monthly withholding.

Recalculate whenever a material change occurs — salary increase, investment-proof submission (or non-submission), regime intimation change, mid-year bonus declared. Heavy adjustments typically occur in the January-February-March payroll as employees finalise investment proofs and any earlier over-deduction or under-deduction is corrected.

Standard deduction + key salary deductions (FY 2025-26)

The standard deduction under Section 16(ia) depends on the regime:

Regime	Standard deduction	Source
Old Tax Regime	₹50,000	Unchanged since FY 2019-20
New Tax Regime	₹75,000	Raised from ₹50,000 by Finance Act 2024; continues for FY 2025-26 per Finance Act 2025

Alongside standard deduction, the employer factors in:

• Professional tax paid to the state government (Section 16(iii))
• Exempt allowances — HRA (Section 10(13A)) + LTA (Section 10(5)) — but only under the Old Regime; both are disallowed under New Regime
• Chapter VI-A deductions — Section 80C (₹1.5 lakh cap), Section 80D (mediclaim), Section 80CCD(1B) (NPS ₹50k), Section 24(b) (home loan interest) — but only under the Old Regime for most items; only Section 80CCD(2) (employer NPS contribution) is allowed under the New Regime
• Employer NPS contribution under Section 80CCD(2) — up to 14% of basic+DA (New Regime); 10% (Old Regime). Allowed under both regimes.

To claim Chapter VI-A deductions through payroll, the employee submits Form 12BB to the employer with supporting evidence (rent receipts, investment statements, mediclaim premiums, home-loan interest certificates, etc.). The employer is expected to verify reasonableness — fabricated proofs that the employer accepted without due diligence can lead to disallowance + Section 271H penalty if discovered.

Old vs New Regime — employee choice + employer mechanics

The dual-regime structure (Section 115BAC) requires employers to manage parallel computation paths.

Per CBDT Circular No. 4/2023 dated 5 April 2023, the employer must seek intimation from each employee at the start of the FY regarding their regime choice. The mechanics:

• Default rule: If the employee fails to intimate, the employer must default to the New Tax Regime (Section 115BAC(1A) introduced by Finance Act 2023).
• No mid-year switch with the employer: Once intimated, the regime is locked for TDS purposes for the remainder of the FY.
• ITR flexibility preserved: The TDS-stage choice does not bind the ITR. Salaried employees (with no business income) can switch regimes every year at the ITR-filing stage if it benefits them.

Important: per Circular 4/2023, the intimation to the employer is not the same as the formal “opt-out” under Section 115BAC(6) — that opt-out is a separate filing required for the ITR.

Slab rates + Section 87A rebate for FY 2025-26

Finance Act 2025 substantially recalibrated the New Tax Regime, making it materially more attractive than the Old Regime for almost all salaried employees.

New Tax Regime slabs (FY 2025-26, per Finance Act 2025)

Income range	Tax rate
Up to ₹4,00,000	Nil
₹4,00,001 to ₹8,00,000	5%
₹8,00,001 to ₹12,00,000	10%
₹12,00,001 to ₹16,00,000	15%
₹16,00,001 to ₹20,00,000	20%
₹20,00,001 to ₹24,00,000	25%
Above ₹24,00,000	30%

Section 87A rebate (New Regime): raised to ₹60,000, making taxable income up to ₹12,00,000 fully tax-free for resident individuals. Combined with the ₹75,000 standard deduction, gross salary up to ₹12,75,000 is effectively NIL tax for FY 2025-26 (assuming no other income).

Old Tax Regime slabs (FY 2025-26 — unchanged)

Income range (individuals < 60 years)	Tax rate
Up to ₹2,50,000	Nil
₹2,50,001 to ₹5,00,000	5%
₹5,00,001 to ₹10,00,000	20%
Above ₹10,00,000	30%

Section 87A rebate (Old Regime): remains ₹12,500 (income ≤ ₹5,00,000).

For senior citizens (60-79) the basic exemption under Old Regime is ₹3 lakh; for super senior citizens (80+) it is ₹5 lakh. The New Regime slabs apply uniformly across age groups.

Surcharge + cess + marginal relief

After computing the base tax under the applicable slabs:

• Health and Education Cess at 4% applies on (tax + surcharge), under both regimes.
• Surcharge kicks in at higher income levels:

Income range	Old Regime surcharge	New Regime surcharge
₹50 lakh — ₹1 crore	10%	10%
₹1 crore — ₹2 crore	15%	15%
₹2 crore — ₹5 crore	25%	25% (capped)
Above ₹5 crore	37%	25% (capped per FA 2023)

The New Regime surcharge cap at 25% (introduced by Finance Act 2023) is one of the structural advantages over the Old Regime for ultra-high-income earners.

Marginal relief is computed where a small income increase would otherwise trigger a disproportionate tax increase — when crossing the ₹50L / ₹1cr / ₹2cr / ₹5cr surcharge thresholds, or when marginally crossing the ₹12L Section 87A rebate cap under New Regime. The relief ensures the additional tax does not exceed the incremental income above the threshold.

Multiple-employer situation (Section 192(2))

Mid-year job changes require careful coordination to avoid TDS shortfall.

The employee submits Form 12B to the new employer, declaring:

• Salary received from the previous employer during the FY
• Exempt allowances + deductions already considered
• Tax already deducted at source by the previous employer
• The PAN + TAN of the previous employer

On receipt of Form 12B, the new employer:

1. Aggregates previous-employer salary + current-employer estimated salary for the rest of the FY
2. Computes total annual tax liability on the aggregated income
3. Deducts the TDS already paid by the previous employer from the total liability
4. Divides the residual liability by the remaining months and deducts that monthly TDS

If the employee withholds Form 12B, the new employer calculates TDS as if the current employment is the only income — almost always resulting in a TDS shortfall that the employee must clear via self-assessment tax (with Section 234B/C interest) at ITR-filing time.

For employees holding concurrent multiple employments (e.g., a director on payroll of two group companies), the employee designates one employer as the primary deductor and submits Form 12B-style consolidated details so that primary employer aggregates income and deducts the right total TDS.

Section 89 relief for arrears + Form 10E procedure

A salaried employee receiving arrears, advance salary, or lump-sum payout (commuted pension, gratuity for past periods) in the current FY can be pushed into a higher tax bracket purely because of the bunching effect — the income belonged to past years but the tax is computed on the current-year basis.

Section 89 read with Rule 21AA provides relief: tax is mathematically recalculated as if the arrears had been received in the FY they actually pertained to, and the lower of (current-year tax) vs (recalculated tax) is the actual liability. The difference is the Section 89 relief.

To claim Section 89 relief through the employer’s TDS computation:

1. Compute the relief using the formula (or the ITR portal’s built-in Section 89 calculator)
2. Log into the Income Tax e-filing portal → file Form 10E online
3. Generate the Form 10E acknowledgement
4. Submit a copy to payroll along with the arrears computation

Without Form 10E filed on the portal, the relief is rejected automatically when the ITR is processed — even if the employee claims it in the ITR. Form 10E must be filed before the relief is claimed.

Form 24Q — quarterly TDS return

Employers report deducted TDS via Form 24Q filed quarterly on the TRACES portal:

Quarter	Period	Due date
Q1	April — June	31 July
Q2	July — September	31 October
Q3	October — December	31 January
Q4	January — March	31 May of subsequent FY

Form 24Q has two annexures:

• Annexure I — challan details + employee-wise deductee records. Filed every quarter.
• Annexure II — the comprehensive year-end salary breakup per employee: gross salary, allowances, perquisites, standard deduction, Chapter VI-A deductions, regime applied, total tax. Filed only with Q4.

Q4 Annexure II is the dataset that drives Form 16 Part B generation. Inconsistencies between Annexure II and Form 16 Part B are an audit-trigger for TRACES.

Form 16 — employer issuance + format

The employer must issue Form 16 to every employee from whom TDS was deducted under Section 192, on or before 15 June of the subsequent FY (for FY 2024-25, the deadline was 15 June 2025; for FY 2025-26, 15 June 2026).

Form 16 has two parts:

• Part A — summary of TDS deducted + deposited per quarter, with challan + BSR codes. Must be downloaded directly from the TRACES portal by the employer (not generated locally). Part A reflects actual government treasury receipts.
• Part B — detailed salary breakdown, deductions, regime applied, taxable income, total tax. Generated from payroll software. Must reconcile to Annexure II of the Q4 Form 24Q.

Note: Form 16 is only for salary income under Section 192. For non-salary payments (rent, professional fees, contractor payments), the deductor issues Form 16A — covered in the Form 16 vs Form 16A explainer.

Common errors

Payroll processing under Section 192 is error-prone. Recurring issues:

• Wrong / inactive PAN in employee record. TDS lands in the suspense ledger; employee cannot claim credit until a Form 24Q correction statement is filed.
• Accepting unverified Form 12BB proofs. Rent receipts without landlord PAN (where required), fabricated investment receipts, claims that don’t reconcile to bank-statement evidence. Employers are expected to apply reasonable verification.
• Applying Old Regime by default. Per Circular 4/2023, the default on no-intimation is New Regime. Continuing to apply Old Regime to employees who never submitted a declaration is a procedural non-compliance.
• Missing perquisite valuation. Employer-provided accommodation, company car for personal use, interest-free loans, club memberships, ESOP vesting — all are perquisites that must be added to gross salary before computing TDS. Missing perquisites cause material under-deduction.
• Delayed Form 16 issuance. Missing the 15 June deadline disrupts employees’ ITR filing by 31 July — creates internal friction and exposes the employer to Section 271H penalty.
• Q4 Annexure II out of sync with Part B Form 16. Different deductions or income figures in the two reports trigger TRACES default notices to the employer.

Penalties for late / short / non-deduction

Trigger	Penalty / interest
Late deduction (TDS not deducted on time)	Section 201(1A) — 1% per month from due date until actual deduction
Deducted but not deposited	Section 201(1A) — 1.5% per month from deduction date until actual deposit
Late filing of Form 24Q	Section 234E — ₹200 per day of delay, capped at total TDS for the quarter
Non-filing or grossly inaccurate Form 24Q	Section 271H — ₹10,000 to ₹1,00,000 (discretionary, AO-imposed)
Salary expense without TDS deduction	Section 40(a)(ia) — 30% of the salary expense disallowed in computing taxable business profits (reversed in the year TDS is eventually deducted + deposited)

Section 40(a)(ia) is the heaviest indirect cost: a ₹10 lakh salary on which TDS was not deducted creates a ₹3 lakh disallowance, which at 25% corporate tax = ₹75,000 extra tax for the year — plus the Section 201(1A) interest on the un-deducted TDS itself, plus Section 271H exposure. The cumulative cost typically exceeds the original TDS amount.

Establishing payroll software with TRACES integration, enforcing strict Form 12BB cut-off dates (typically end-January), and verifying perquisite valuations annually are non-negotiable for clean Section 192 compliance.