TDS on salary under Section 192: when to deduct, how to compute, Form 16 and 24Q

As an employer you must deduct TDS on salary under Section 192 whenever an employee's estimated income for the financial year would attract tax, and deduct it every month at the average rate of that annual tax. Under the default new regime, salary up to ₹12,75,000 a year attracts no tax after the ₹75,000 standard deduction and the Section 87A rebate, so many small-business salaries need no TDS at all. Above that, you compute the year's tax in April, deduct one-twelfth each month, deposit it by the 7th, file Form 24Q quarterly and issue Form 16 by 15 June.

When an employer must deduct

Section 192 applies to any person paying "salary", which includes a proprietor, a partnership, an LLP or a company, and there is no turnover or audit condition. The trigger is simple: if the employee's estimated total income under the head salary for the financial year exceeds the amount on which no tax is payable, you must deduct. Because the Section 87A rebate wipes out tax on total income up to ₹12 lakh under the new regime, the practical threshold for a salaried employee with no other income is ₹12,75,000 of gross salary (₹12 lakh plus the ₹75,000 standard deduction).

The moment one employee is expected to cross that line, you need a TAN (Tax Deduction and Collection Account Number), obtained by filing Form 49B online with a fee of about ₹65. Quote the TAN on every challan, return and Form 16. A proprietor's PAN cannot be used in place of a TAN for salary TDS.

A note on the law itself: the Income-tax Act, 2025 replaces the 1961 Act from 1 April 2026 and renumbers most provisions. The rules for TDS on salary carry over unchanged, and the old section numbers are still what forms, portals and most CAs refer to, so this guide uses them. Check the latest notification if you need the new section reference for a notice or form.

Step 1: estimate the year's salary and other income

In April (or the month of joining), project the employee's salary for the full year: basic, HRA, allowances, bonus, employer contributions that are taxable, perquisites such as a company car or rent-free accommodation, and any arrears. Subtract exempt components where they apply (for example HRA exemption under Section 10(13A), only under the old regime) and the standard deduction.

Section 192(2B) lets the employee declare other income (interest, rent, one house property loss) and the TDS already deducted on it, so that you take it into account; Form 12BAA, introduced in October 2024, is the prescribed way to report TDS and TCS from other sources so that salary TDS is reduced accordingly. You are not required to verify these declarations beyond taking them in good faith, but keep them on file.

If the employee joined mid-year from another employer, they can give you Form 12B with salary and TDS details from the previous job. If they do, you compute tax on the combined salary and deduct the balance; if they do not, you compute only on what you pay.

Step 2: choose the regime and compute annual tax

The new regime under Section 115BAC is the default. An employee who wants the old regime must tell you in writing (a simple declaration is enough; most employers include it in the Form 12BB pack). For FY 2026-27 the slabs are:

Standard deduction is ₹75,000 for salaried employees. Section 87A gives a rebate of up to ₹60,000 when total income does not exceed ₹12 lakh, with marginal relief just above it, so tax is nil up to ₹12 lakh of total income. Add 4% health and education cess on the tax after rebate. Surcharge applies only above ₹50 lakh.

Old-regime standard deduction is ₹50,000, the 87A rebate is ₹12,500 for total income up to ₹5 lakh, and the employee can claim HRA exemption, LTA, Section 80C (₹1,50,000), 80D health insurance, 80CCD(1B) NPS, home loan interest under Section 24(b) and the rest. These are what make the old regime worthwhile for someone with large investments and rent.

Step 3: deduct monthly at the average rate

Divide the annual tax (including cess) by the number of months left in the year, and deduct that amount from each month's salary. Section 192(3) allows you to increase or decrease the deduction in later months to correct for a raise, a bonus, a new declaration or a mistake, so the total deducted by March equals the tax actually due. A bonus paid in October, for example, is added to the annual estimate and the remaining months' deductions are increased.

Show the TDS on the salary slip as a separate deduction, and pay the net. TDS deducted in a month is deposited by the 7th of the following month through the e-Pay Tax facility on the income tax portal (challan ITNS 281, nature of payment 92B); March deductions go by 30 April. Late deposit costs 1.5% a month under Section 201(1A), and non-deduction costs 1% a month.

Form 12BB: the employee's declaration

Rule 26C requires an employee claiming deductions or exemptions to give you Form 12BB with evidence: rent receipts and the landlord's PAN if annual rent exceeds ₹1,00,000 for HRA; travel proof for LTA; the lender's certificate for home loan interest; and receipts for Section 80C, 80D and similar claims. Collect a provisional declaration in April so that you can set the monthly deduction, and the actual proofs by January or February so that you can true up the last two months.

Under the new regime, Form 12BB is still useful for the regime declaration, other income and Form 12BAA details, but the investment proofs are not needed because the deductions do not apply. Keep the forms for at least six years; the assessing officer can ask for them if an employee's claim is questioned.

Form 16, Form 24Q and the compliance calendar

Form 24Q is filed on the TRACES or e-filing portal using the return preparation utility or through your CA. The Q4 return carries the full-year salary details (Annexure II) for every employee, whether or not tax was deducted, so file it even if the total TDS is small. A late 24Q attracts a fee of ₹200 a day under Section 234E (capped at the TDS amount) and a possible penalty of ₹10,000 to ₹1,00,000 under Section 271H.

Form 16 is generated from TRACES once your Q4 24Q is processed. Part A shows the quarterly TDS deposited against the employee's PAN; Part B shows the salary breakup, deductions and tax computation. Employees need it to file their return by 31 July, which is why the 15 June deadline is not negotiable. If no tax was deducted for an employee, you are not required to issue Form 16, but a salary certificate on letterhead is good practice.

Your quarterly rhythm for other TDS (contractors, rent, professional fees) runs alongside this on Form 26Q; see TDS for small business under 194C, 194J and 194H.

Worked example: a ₹9 lakh salary in a Pune design agency

A Pune design agency hires a senior designer at ₹9,00,000 a year from 1 April 2026: basic ₹4,50,000, HRA ₹1,80,000 and other allowances ₹2,70,000. The designer pays rent of ₹15,000 a month, invests ₹1,50,000 in PPF and ELSS, and pays ₹25,000 for a health insurance policy.

New regime (default)

• Gross salary: ₹9,00,000
• Less standard deduction: ₹75,000
• Total income: ₹8,25,000
• Tax: 5% on ₹4,00,000 (₹4 lakh to ₹8 lakh) = ₹20,000, plus 10% on ₹25,000 = ₹2,500. Total ₹22,500.
• Section 87A rebate (income up to ₹12 lakh): ₹22,500
• Tax payable: nil. Monthly TDS: nil.

The agency does not deduct anything. It still records the regime declaration, and files the designer in Annexure II of the Q4 24Q if it has a TAN and is filing for other employees.

Old regime (if the designer opts in writing)

• HRA exemption: least of actual HRA ₹1,80,000; rent paid minus 10% of basic (₹1,80,000 minus ₹45,000 = ₹1,35,000); 40% of basic for a non-metro city ₹1,80,000. Exempt: ₹1,35,000.
• Gross salary ₹9,00,000 minus HRA exemption ₹1,35,000 minus standard deduction ₹50,000 = ₹7,15,000
• Less Section 80C ₹1,50,000 and Section 80D ₹25,000 = ₹5,40,000 total income
• Tax: 5% on ₹2,50,000 = ₹12,500, plus 20% on ₹40,000 = ₹8,000. Total ₹20,500. No 87A rebate because income exceeds ₹5 lakh.
• Cess 4%: ₹820. Total tax ₹21,320. Monthly TDS: ₹21,320 ÷ 12 = ₹1,777 (round the last month to absorb the difference).

Even with ₹3,10,000 of deductions, the old regime costs this designer ₹21,320 while the new regime costs nothing, so the default is the right answer here. The old regime starts to win only for higher salaries with very large deductions, typically home loan interest plus 80C plus HRA on a high rent.

For comparison: a ₹15 lakh salary under the new regime

Total income ₹15,00,000 minus ₹75,000 = ₹14,25,000. Tax: ₹20,000 (5% slab) + ₹40,000 (10% slab) + 15% on ₹2,25,000 = ₹33,750; total ₹93,750. No rebate above ₹12 lakh. Cess ₹3,750. Annual tax ₹97,500; monthly TDS ₹8,125. If a ₹1,00,000 Diwali bonus is paid in October, the annual estimate rises by ₹15,000 tax plus cess (₹15,600), and the remaining six months' deductions go up by ₹2,600 each.

Common mistakes

• Deducting a flat 10% "to be safe" without computing the annual tax. Section 192 requires the average rate; over-deduction locks up the employee's money until their refund.
• Skipping the regime declaration and assuming the old regime because the employee has a home loan. The default is new unless the employee says otherwise.
• Forgetting cess. Tax of ₹93,750 is ₹97,500 after cess, and the difference shows up as a shortfall in the employee's return.
• Not adjusting for a mid-year bonus or increment, so that March carries a large catch-up deduction that the employee did not expect.
• Paying salary net of TDS but depositing the TDS late or not at all. The employee gets no credit in Form 26AS, and you owe interest under Section 201(1A).
• Filing Form 24Q only for employees with tax deducted. Annexure II of Q4 should list every employee's salary for the year.
• Issuing Form 16 in July "with the return". The due date is 15 June; a late certificate carries a penalty of ₹100 a day under Section 272A(2)(g).
• Treating a full-time worker as a contractor under Section 194J to avoid salary TDS. See hiring your first employee for the employee versus contractor test.

How VyaparKit helps

VyaparKit's payroll run takes each employee's annual salary and regime choice, computes the year's tax with the standard deduction, rebate and cess, and spreads it across the remaining months as a TDS line on the salary slip. PF, ESI and professional tax are computed in the same run and the net figures go into an NEFT bank file. For a single employee you can issue a payslip with the same deductions shown. Draft the salary breakup in the offer letter so that basic, HRA and allowances are fixed from day one. VyaparKit does not file Form 24Q or generate Form 16; use the TRACES portal or your CA for those.

Next steps

• Project each employee's FY 2026-27 salary in April and note who crosses ₹12,75,000 (new regime) or has opted for the old regime.
• Apply for a TAN in Form 49B if anyone is taxable and you do not already have one.
• Collect regime declarations, Form 12BB and, where relevant, Form 12BAA and Form 12B from every employee.
• Deposit TDS by the 7th and file Form 24Q by the quarterly due dates; issue Form 16 by 15 June.
• Read salary structure: basic, HRA and allowances to design components that keep the computation simple.