TDS on Salary Section 392 (Old 192): Complete Guide FY 2026-27

Last reviewed: 18 September 2026. Every payslip issued since April 2026 has been running on a section nobody has heard of yet. Salary TDS is no longer Section 192 — it is Section 392 of the Income-tax Act, 2025, and Q2 (July–September) is the first full quarter most payroll teams will run entirely inside the new framework, with the Form 138 statement due 31 October 2026. The underlying mechanics — the average rate method, the new-regime default, the standard deduction — carry forward largely unchanged, but the numbering, the forms and two genuinely new declaration forms are not things most employees or even smaller employers have caught up on. This is the complete picture: how the deduction is actually computed, what changed, what didn’t, and two full worked examples.

What Section 392 actually says

Section 392 of the Income-tax Act, 2025 is the successor to Section 192 (salary TDS) and Section 192A (TDS on premature EPF and superannuation withdrawals) of the 1961 Act, merged into a single, more structured provision. In substance, little has changed: any person responsible for paying salary must deduct income tax at the time of payment, computed at the average rate of tax on the employee’s estimated total taxable salary for the year. What has changed is the numbering, the consolidation of EPF/superannuation withdrawal TDS into the same section, sharper drafting on perquisite valuation and ESOP deferral for eligible start-ups, and an explicit requirement that the employer furnish accurate perquisite particulars in the statement — not just the cash component.

For tax year 2025-26 (income earned up to 31 March 2026, filed as AY 2026-27), the old Section 192 still governs, which is why our AY 2026-27 filing content refers to the 1961 numbering. For salary paid from 1 April 2026 onward — the paycheck you are receiving right now — it is Section 392. Keep the two straight in any board note or payroll SOP; using the wrong reference on an internal memo is cosmetic, but using it on a certificate or a legal notice is not.

Who must deduct, and from when

Any employer — company, LLP, partnership, proprietorship, trust or individual — paying salary to an employee must deduct under Section 392 once the employee’s estimated annual taxable salary exceeds the basic exemption threshold applicable under the regime being used (₹4,00,000 under the new regime, which is also the default). There is no separate rupee threshold to cross the way there is under sections like 194-IA or 194Q; the trigger is simply that tax is payable on the estimated annual figure. A part-time or contractual worker paid a genuine salary under an employer-employee relationship falls under Section 392; a consultant or professional invoiced on a retainer falls under Section 393 (TDS on professional fees, old 194J) instead — the distinction turns on the underlying relationship, not the job title, and misclassifying a consultant as an employee (or vice versa) to dodge PF/ESIC or to apply a lower TDS rate is a recurring audit flag.

How the average rate method works

Unlike a contractor payment where a flat percentage applies, salary TDS is computed on the average rate:

At the start of the year (or when employment begins), the employer estimates the full year’s salary — basic, allowances, perquisites, bonus if reasonably known — works out the tax payable on it after the standard deduction, applicable regime slabs, and any declared deductions, and expresses that tax as a percentage of the estimated salary. That percentage is applied to whatever is actually paid each month. Because the estimate is revisited whenever pay changes — an increment, a bonus, a fresh declaration, a mid-year regime switch — the average rate itself moves during the year, which is why the TDS in April and the TDS in March on the same base salary are rarely identical.

The new-regime default and opting for the old regime

Since the new tax regime became the default under Section 202 of the erstwhile transition framework (now carried forward under Section 392 for TDS purposes), an employer must deduct on the new-regime basis unless the employee furnishes a written intimation opting for the old regime, typically at the start of the financial year or before the first salary payment. This intimation is for TDS purposes only for that employer in that year — it does not bind the employee’s actual return. A salaried employee with no business or professional income may choose a different regime at the time of filing the return itself (the return-time choice governs the final tax liability; the employer’s deduction only affects cash flow and the size of any refund or balance payable). Employees with business or professional income face more restrictions on switching regimes year to year and should not treat the employer intimation casually. Compare both regimes properly before deciding — our old vs new regime calculator and the dedicated break-even guide work through the numbers in detail.

Slabs and the standard deduction, FY 2026-27

The old regime slabs (₹2.5 lakh nil, 5% to ₹5 lakh, 20% to ₹10 lakh, 30% beyond) are unchanged and remain available only to those who opt in. The employer must build the standard deduction into the estimate automatically, without any declaration from the employee: ₹75,000 under the new regime, ₹50,000 under the old regime, available against salary and pension income only. Health and education cess of 4% applies on the tax computed under either regime, before any rebate reduces it to nil.

The Section 157 (old 87A) rebate

Under the new regime, a rebate of up to ₹60,000 is available under Section 157 (the successor to old Section 87A) where net taxable income does not exceed ₹12,00,000, effectively wiping out the tax computed on that slab and bringing salary-only taxpayers to nil tax on gross salary up to roughly ₹12.75 lakh once the ₹75,000 standard deduction is applied. Two things this rebate does not do: it does not extend to short-term or long-term capital gains taxed at special rates, which stay taxable even where the rest of your income is fully rebated, and it does not apply at all under the old regime beyond its much lower ₹5 lakh threshold. Employers must apply this rebate while computing the average rate for eligible employees under the new regime — not leave it to the employee to claim only at return time. The interplay with capital gains, marginal relief at the edge of the threshold and further worked examples are in our dedicated Section 157/87A rebate guide.

Deductions your employer must factor in

Only 80CCD(2) — the employer’s own contribution to an employee’s NPS account — survives under both regimes, which is why it is often called the one deduction the new regime still keeps. It is deductible over and above the standard deduction and does not require the employee to contribute anything personally; the deduction is for the employer’s contribution, restructured as part of CTC. Everything else in the old-regime column requires a Form 12BB declaration with supporting proof before the employer can factor it into the monthly TDS estimate — our HRA exemption calculator covers the metro-city rules for that specific exemption in detail.

Perquisites, ESOPs and non-monetary pay

Section 392 explicitly covers non-monetary perquisites — rent-free or concessional accommodation, a company car, interest-free or concessional loans, club memberships, and similar benefits valued under the perquisite valuation rules. The employer must estimate the value of these benefits and fold it into the annual salary estimate for TDS purposes even though no cash is paid out for the perquisite itself; the cash component of salary simply carries a heavier TDS load to cover the perquisite’s tax. Employee stock options granted by eligible start-ups can have their perquisite taxation deferred to a later trigger event (sale of shares, cessation of employment, or a specified number of years, whichever is earliest) rather than taxed at the point of vesting or exercise — a relief most other employers’ ESOP schemes do not get. Valuation disputes on non-cash benefits, and how they differ from the discontinued-in-substance-but-still-relevant Section 194R framework for business benefits to non-employees, are covered in our perquisites valuation dispute note; employees of a foreign parent receiving RSUs or ESPP shares should also read our RSU and ESPP taxation guide, since that perquisite is taxed through payroll at vesting even though the shares sit abroad.

Form 12BB vs Form 12BAA

Both forms exist to prevent over-deduction that would otherwise sit as a refund for a year or more. Employees who have meaningful FD interest, dividend income with TCS on a large purchase, or a second income with its own TDS are usually better off filing Form 12BAA early rather than waiting to claim the credit only when the return is processed.

Job changes and multiple employers

Changing jobs mid-year, or holding two jobs at once, is where salary TDS most commonly goes wrong. Each employer, left to itself, computes TDS only on what it pays — so two employers each paying ₹7,00,000 a year might both deduct little or nothing, while the combined ₹14,00,000 clearly attracts tax. Form 12B is the fix: the employee furnishes details of salary (and TDS already deducted) from the previous employer to the current one, so the current employer folds the full-year figure into its own average-rate computation for the rest of the year. Skipping this is legal — nobody is obliged to file Form 12B — but it usually means a shortfall payable, with interest under Section 234B/234C-equivalent provisions, when the return is filed.

Two worked examples

Example 1 — new regime (default), no other declarations. Mr. Rohan, a Thane-based employee, draws a gross annual salary of ₹12,00,000 with no other income and no Form 12BB declaration (he has not opted for the old regime).

This is a common real scenario employees ask about: at ₹12 lakh gross with only the standard deduction, no monthly TDS is deducted at all under the new regime, because the computed tax is fully absorbed by the rebate.

Example 2 — old regime, opted in, with deductions. Ms. Priya, also Thane-based, draws a gross annual salary of ₹18,00,000. She files Form 12BB opting for the old regime with 80C of ₹1,50,000, 80D of ₹25,000, home loan interest of ₹2,00,000 (self-occupied) and an HRA exemption computed at ₹1,50,000.

Even with ₹5.25 lakh of old-regime deductions, the new regime still comes out roughly ₹36,000 cheaper in this case — a reminder that the old regime is worthwhile only when deductions are genuinely large relative to income, not merely present. Run your own numbers on our regime comparison calculator before submitting Form 12BB; once submitted for TDS purposes it drives every month’s deduction until revised.

A third, shorter point worth flagging: a bonus paid mid-year does not get taxed separately — it is added to the annual estimate, the average rate is recalculated on the new (higher) total, and that revised rate applies to all remaining payments including the bonus itself. This is why a bonus month’s TDS often looks disproportionately high: it is not a special bonus tax rate, it is the average rate catching up on an estimate that just moved.

The employer’s compliance calendar

Full detail on the renumbered quarterly forms, the transition from the old 24Q/26Q/27Q/27EQ set, and the penalty-relief window is in our Q1 FY 2026-27 TDS return guide; if your salary TDS is not reflecting correctly in Form 26AS or AIS, see the dedicated note on TDS credit mismatches and Section 205 protection.

What happens on short deduction or delay

• Short or non-deduction — interest under Section 398 (old 201(1A)) at 1% per month or part thereof, from the date it was deductible to the date it is actually deducted.
• Deducted but deposited late — interest at 1.5% per month or part thereof, from the date of deduction to the date of deposit.
• Late filing of Form 138 — fee under Section 427 (old 234E) of ₹200 per day, capped at the TDS amount in that statement.
• Non-filing or incorrect particulars — penalty under Section 461 (old 271H) of ₹10,000 to ₹1,00,000, waived if tax, interest and fee are paid and the statement is filed within one month of the due date.

All four consequences fall on the employer, not the employee. If tax was genuinely deducted from your salary but never reaches your Form 26AS or AIS because the employer failed to deposit or file, Section 205 bars the department from recovering that amount from you a second time — keep your payslips as proof and pursue the employer directly; our TDS default notice guide (linked above) covers the employer’s side of the same problem in detail, and the full section-by-section TDS rate map for every payment type, salary included, is in the TDS Rate Finder for FY 2026-27.

Common mistakes

• Assuming a job change mid-year automatically nets off correctly — it doesn’t, unless Form 12B is filed with the new employer.
• Submitting Form 12BB investment proofs late in the year, so the correction is crammed into the last two or three months at a punishing monthly rate instead of spread evenly.
• Employers treating the new regime as “automatic and therefore no declaration needed” and skipping the standard deduction or Section 157 rebate check for eligible employees — both must still be applied.
• Confusing the employer’s TDS-purpose regime declaration with the final regime choice at return-filing time; they are not always the same decision point for a salary-only taxpayer.
• Ignoring Form 12BAA where meaningful FD or dividend TDS exists, then waiting a year for the refund instead of getting it adjusted through payroll.
• Payroll software still quoting old section references (192, 192A) on certificates generated for FY 2026-27 periods — check your vendor has updated to Section 392 and Form 130/138 before issuing certificates.

Frequently asked questions

Disclaimer: This article is for general information as on 18 September 2026 and is based on the Income-tax Act, 2025, the Income-tax Rules, 2026 and material available in the public domain. It is not professional advice or an opinion on any specific case; figures and worked examples are illustrative. Provisions, forms, utilities and due dates may change by notification; please verify the current position or consult your advisor before acting. Somesh Chandak & Associates accepts no liability for action taken on this content without specific professional engagement.