TDS on Salary under Section 192: New vs Old Regime & Form 16 Guide (2026)
Section 192 of the Income Tax Act, 1961 mandates every employer to deduct Tax Deducted at Source (TDS) from an employee's estimated annual salary income at the average rate of income tax. With the New Tax Regime serving as the default system, HR teams and payroll administrators must know how to handle dual-regime choices, Section 87A rebates, quarterly Form 24Q returns, and digital Form 16 issuance.
Key Annual Compliance Timeline for Employers
Deposit deducted TDS via Challan ITNS 281.
File Form 24Q quarterly return on TRACES.
Issue signed Form 16 (Part A & B) to staff.
1. How Monthly TDS is Computed
Unlike vendor TDS which is deducted at flat rates (e.g. 1% or 2%), salary TDS is calculated using the Average Rate Method:
This dynamic calculation adjusts whenever an employee receives mid-year variable bonuses, salary revisions, or updates their investment proofs.
2. Comparing New vs Old Tax Regime Rules
New Tax Regime (Default)
- • Standard Deduction: ₹75,000
- • Section 87A Rebate: Up to ₹7,75,000 total income requires ₹0 tax
- • Exemptions: HRA, LTA, and Section 80C deductions are not permitted
- • Slabs: Low progressive rates up to ₹15 Lakhs
Old Tax Regime (Requires Employee Opt-in)
- • Standard Deduction: ₹50,000
- • Section 80C: Up to ₹1,50,000 (PPF, ELSS, EPF, Life Insurance)
- • Section 80D: Up to ₹25,000–₹1,00,000 health insurance
- • HRA Exemption: Allowed under Section 10(13A) with rent proofs
Calculate Tax Liability for Both Regimes
Try our free In-Hand Salary Calculator to view side-by-side tax deductions.