TDS on Salary FY 2026-27: How It Works

TDS on salary is income tax your employer deducts from your pay and deposits with the government. For payments made on or after 1 April 2026 it is governed by the Income-tax Act, 2025: salary TDS is section 392 (it replaced section 192 of the 1961 Act). This page explains how it works. Your own deduction depends on your income, your regime and what you declare to your employer.

What Is TDS on Salary?

Section 392(1) says anyone paying income under the head Salaries must deduct income-tax when the salary is paid. The deduction is at the average rate of tax, worked out on the rates in force for the year in which the payment is made, applied to the employee's estimated income under Salaries for that year. It is not a flat percentage of each month's pay.

How the Tax Is Worked Out

• The employer estimates your salary income for the full year, including perquisites and profits in lieu of salary (section 392(5)(a)).
• Tax on that estimate is computed at the slab rates in force. For tax year 2026-27 the new-regime slabs are the default; see our new tax regime slabs page.
• The average rate is that tax divided by the estimated income, and it is applied to each salary payment.
• If an earlier deduction was too high or too low, the employer may adjust later deductions in the same year (section 392(5)(c)).

Worked Example

This is our own illustration from the new-regime slabs. It assumes a salary of ₹15,00,000, no other income, no other deductions, and the new regime. Real employer calculations vary with your declarations.

The section 156 rebate does not apply here because income is above ₹12,00,000 and the slab tax is lower than the amount over ₹12 lakh, so marginal relief gives nothing. See our zero-tax page for the rebate rule.

What You Can Tell Your Employer

Under section 392(4)(a), the employer must take into account particulars you choose to give, in the prescribed form. They can raise or lower the TDS. They include:

• salary from another employer in the same year;
• relief under section 157 where you are entitled to it;
• loss under the head Income from house property for the same year;
• income under other heads, and tax already deducted or collected at source.

Under section 392(5)(b) the employer also collects proof of the claims you want counted. Under section 392(4)(b), TDS can be reduced only for house-property loss and for tax already deducted or collected elsewhere. Which deductions are allowed depends on your regime; see our guide on how to save income tax.

Forms: Form 130 and Form 138

• Form 130 is the TDS certificate for salary under the new rules. It replaces Form 16. The employer must download it from TRACES and sign it; one made any other way is not a valid Form 130. The due date for issuing it is 15 June after the end of the tax year.
• Form 138 is the quarterly TDS statement the employer files. It replaces Form 24Q. Form 130 is generated from the processed statements, and a correction needs a revised Form 138.
• Form 130 does not have to be attached to your return of income.

What to Check

• Your Form 130 salary and TDS figures against your payslips.
• That every income and deduction you want counted was declared to your employer in time.
• That TDS is based on an estimate. The final tax is settled when you file your return, so the two can differ.

Rules can be amended. Confirm with incometaxindia.gov.in or a tax professional.

Sources: section 392 text is from the Income-tax Act, 2025 as amended by the Finance Act, 2026 (section text read on indiacode.ecourtsindia.com, a non-government mirror, and cross-checked against the official incometaxindia.gov.in section 392 page). Slabs and cess are from the Finance Bill 2026 explanatory memorandum. Forms: Form 130 FAQs and Form 138 FAQs. The move from section 192 to 392 is from the e-filing portal TDS FAQ. The worked example is our own arithmetic.