TDS on Salary Under ITA 2025: Section 192, Form 16, Employer Obligations

TDS on salary is governed by Section 192 of ITA 2025. Unlike other TDS provisions with fixed rates, salary TDS is calculated at the average rate of income tax applicable to the employee's estimated total income for the Tax Year. This section explains the employer's obligations, computation method, and annual compliance requirements.

Who Must Deduct TDS on Salary?

Every employer — individual, HUF, company, LLP, or any other person — responsible for paying salary to an employee must deduct TDS. The obligation exists even if the employer is not registered or the employee works part-time.

Computation of TDS: Step-by-Step

1. Estimate gross salary for the entire Tax Year (all components)
2. Deduct exempt allowances (LTA, conveyance — if applicable regime)
3. Deduct standard deduction: Rs. 75,000 (default regime)
4. Add income from other sources declared by employee (Form 12BB)
5. Deduct Chapter VI-A deductions (only if old regime opted)
6. = Estimated Net Taxable Income
7. Compute tax on estimated income at applicable slab rates
8. Divide annual tax by 12 (or remaining months) = monthly TDS

Form 12BB — Employee Declaration

Employees submit Form 12BB at the start of the Tax Year declaring:

• HRA claimed (rent receipts, landlord PAN if rent > Rs. 1 lakh/year)
• LTA claimed (once in 4-year block)
• Home loan interest (self-occupied — up to Rs. 2 lakh)
• Chapter VI-A deductions (80C, 80D, 80G etc.) — only if old regime opted
• Any other income (FD interest, rental income, etc.)

Multiple Employers — TDS Coordination

If an employee works for two employers simultaneously, one employer deducts TDS considering salary from both (employee must disclose both salaries). If employers change during the year, the new employer must consider salary from previous employer (Form 12B).

Tax Regime Declaration

Employees must declare their chosen tax regime (default or old) to the employer by the beginning of the Tax Year. If no declaration is made, the employer deducts TDS under the default regime. The employee can change regime at the time of filing ITR.

Form 16: Annual TDS Certificate for Salary

Form 16 must be issued by 15 June after the end of the Tax Year. Failure = penalty Rs. 100/day per certificate (min Rs. 1,500).

Perquisites and TDS

The value of taxable perquisites (ESOP, rent-free accommodation) is added to cash salary for TDS computation. Employers must value perquisites per the perquisite valuation rules and include them in the gross salary figure used for TDS.

Consequences for Employers

• Non-deduction: Interest 1%/month + possible prosecution
• Non-deposit after deduction: Interest 1.5%/month + possible imprisonment up to 7 years
• Late/non-filing of 24Q: Rs. 200/day penalty