Employer Payroll Declaration Forms Under New Act: Complete Guide for 2026

Section 392 — The New Salary TDS Provision

Under the old Income Tax Act, 1961, employer TDS on salary was governed by Section 192. Under the Income-tax Act 2025, Section 392(1) is the equivalent provision. The core mechanics are unchanged:

• Employer must estimate the employee's total income for the Tax Year and deduct TDS at the applicable slab rate monthly
• TDS is computed as: (Estimated Annual Tax Liability ÷ 12) per month, adjusted for any TDS already deducted
• Employee must declare their regime preference (old or new) — employer uses the chosen regime's slabs
• Default regime is the new regime if the employee does not declare preference

Form 124 — Investment Declaration: What Changed

Old Form 12BB (filed under Rule 26C) is the standard investment declaration form employees submit to employers. Under the Income-tax Rules 2026, this form has been renumbered to Form 124. The four components remain conceptually the same:

How Regime Preference Actually Works for Payroll Purposes

There is no notified form titled "Form 112" for regime election — that form number belongs to an entirely different filing (the audit report for registered non-profit organisations, filed under Section 348). For payroll purposes, an employee indicates their regime preference to the employer through a simple declaration, the same mechanism that existed under the old Act; this is not itself a statutory election binding on the employee's final ITR choice. If the employee does not declare a preference, the employer must compute TDS under the new (default) regime. The employee's actual regime choice is finalised at the time of filing their own ITR — for salaried individuals with no business income, this can differ from what was declared to the employer, with any tax difference settled through self-assessment tax or refund.

Employer TDS Calendar — Tax Year 2026-27

Form 130 (Old Form 16) — What Must Change for Tax Year 2026-27

Old Form 16 has been renumbered to Form 130 under the Income-tax Rules 2026. For Tax Year 2026-27 (to be issued by 15 June 2027), Form 130 reflects new Act section numbers in Part A. Key features of the renumbered form:

• Form number and Part A header: Certificate issued as Form 130 under the new Act's TDS-certificate provision (the equivalent of old Section 203), rather than as "Form 16 under Section 203 of Income Tax Act, 1961"
• TDS section reference: "Amount of income-tax deducted under Section 392(1)" instead of Section 192
• Regime indicator: A field indicating whether the employee was on the new regime or old regime for the year

Part B (salary computation breakdown) continues to follow the standard format with gross salary, perquisites, exempt allowances, deductions, and net taxable salary. The computation method remains identical — the form number and section references change, not the underlying mechanics.

Handling Mid-Year Joiners and Leavers

Mid-Year Joiners

For employees joining after April 2026, the employer must:

• Collect Form 124 (investment declaration) and the employee's regime preference at the time of joining
• Collect the renumbered equivalent of old Form 12B (statement of previous employer's salary) — verify the current form number under the Income-tax Rules 2026 before relying on the old number, since forms have been renumbered
• Compute TDS based on total estimated annual income (current employer + previous employer salary) divided by remaining months

Mid-Year Leavers (Resignations)

For employees leaving during the Tax Year:

• Issue a provisional Form 130 (the renumbered TDS certificate) or salary certificate on the last working day showing TDS deducted up to the leaving date
• Issue the final Form 130 by 15 June of the following year (15 June 2027 for Tax Year 2026-27)
• Ensure ESOP perquisite value is included in the final F&F settlement TDS computation if options were exercised in the same year