TDS on Salary Under Section 192 — Old vs. New Regime Decoded
Quick Summary
Every employer in India must deduct Tax Deducted at Source (TDS) from employees' salaries under Section 192 of the Income Tax Act, 1961, based on each employee's declared tax regime. Errors in TDS deduction lead to interest, penalties, and Form 16 mismatches that haunt employees during ITR filing. This article explains the mechanics and shows how Founding Legals automates the entire flow.
The Legal Breakdown / Why It Matters
Section 192 of the Income Tax Act, 1961: Every person responsible for paying salary must deduct income tax computed on estimated total income of the employee at the rates in force for the financial year.
Section 192(2D): The employee must furnish a declaration regarding the chosen tax regime. The default (since FY 2023-24) is the New Regime.
New Tax Regime Slabs (FY 2025–26)
| Income Slab | Tax Rate |
|---|---|
| Up to ₹4,00,000 | Nil |
| ₹4,00,001 – ₹8,00,000 | 5% |
| ₹8,00,001 – ₹12,00,000 | 10% |
| ₹12,00,001 – ₹16,00,000 | 15% |
| ₹16,00,001 – ₹20,00,000 | 20% |
| ₹20,00,001 – ₹24,00,000 | 25% |
| Above ₹24,00,000 | 30% |
Standard Deduction of ₹75,000 + Section 87A rebate up to ₹60,000 (for income up to ₹12 Lakh).
Old Tax Regime Slabs (FY 2025–26)
| Income Slab | Tax Rate |
|---|---|
| Up to ₹2,50,000 | Nil |
| ₹2,50,001 – ₹5,00,000 | 5% |
| ₹5,00,001 – ₹10,00,000 | 20% |
| Above ₹10,00,000 | 30% |
Standard Deduction of ₹50,000 + Section 87A rebate up to ₹12,500 + all deductions (HRA, LTA, 80C, 80D, etc.) available.
Surcharge & Cess (Both Regimes)
| Income Range | Surcharge | Health & Education Cess |
|---|---|---|
| ₹50 Lakh – ₹1 Crore | 10% | 4% on (Tax + Surcharge) |
| ₹1 Crore – ₹2 Crore | 15% | 4% |
| ₹2 Crore – ₹5 Crore | 25% (capped under new regime) | 4% |
| Above ₹5 Crore (Old) | 37% | 4% |
Employer Compliance Calendar Under Section 192
| Task | Form | Deadline |
|---|---|---|
| Monthly TDS Deposit | Challan ITNS 281 | 7th of next month (30th April for March) |
| Quarterly TDS Return | Form 24Q | 31st July, 31st Oct, 31st Jan, 31st May |
| Annual TDS Certificate | Form 16 | 15th June of next FY |
| Regime Declaration / Proofs | Form 10-IEA / Internal | Declaration: April; Proofs: Jan–Feb |
How to Do It on Founding Legals
- Step 1: At start of year, each employee compares and declares their regime via the employee portal, locking it for the year.
- Step 2: Throughout the year, employees upload investment proofs. HRA is auto-verified against the landlord's PAN if rent > ₹1 Lakh.
- Step 3: Monthly payroll auto-computes: projected taxable income, tax payable, tax deducted till date, andRemaining TDS pro-rated.
- Step 4: TDS deposited automatically via Challan ITNS 281, and Form 24Q is filed quarterly directly on the TRACES portal.
- Step 5: Form 16 is auto-generated on 15th June, digitally signed using company DSC, and emailed.
If your TDS deduction doesn't match the employee's Form 26AS / AIS (due to incorrect regime, missed investment proofs, or late deposits), the employee receives a demand notice when they file their ITR. They will come to you for fixes — and Form 24Q correction requests are a 30–60 day ordeal. Our TRACES Reconciliation Tool catches mismatches monthly.
Section 192(2D) requires employers to deduct TDS based on the declared regime "at the beginning of the year." If an employee doesn't declare by 30th April, the law defaults them to the New Regime. Founding Legals sends three reminders in April and auto-applies the default on May 1st.