Income Tax
Salary TDS Under Old Act vs New Act — Payroll Transition: Rules, Limits & Worked Examples
Reviewed by CA Nikhil Gupta · Last reviewed 23 June 2026
Official sources cited: incometax.gov.in TDS FAQ | Income Tax Act 2025 Section 392 | Income Tax Rules 2026 | CBDT Notifications
From 1 April 2026, salary TDS moved from Section 192 of the Income Tax Act, 1961 to Section 392(1) of the Income Tax Act, 2025. For employees, the tax deduction mechanics are largely unchanged. For employers and HR/payroll teams, the transition requires updating software section codes, new quarterly return forms (Form 138, replacing Form 24Q), a new TDS certificate format (Form 130, replacing Form 16), and a mandatory TDS computation reset for Tax Year 2026-27. This guide gives you the exact rules, the CBDT-confirmed cut-off logic for March/April payments, and a complete worked example.
Use the Income Tax CalculatorModel the tax impact alongside this guide.
Open CalculatorWhat Changed and What Didn't — Quick Reference
| Parameter | Old Act 1961 (up to March 2026) | New Act 2025 (from April 2026) |
|---|---|---|
| Governing section | Section 192 | Section 392(1) |
| Tax slabs | Unchanged | Unchanged (same slabs) |
| Standard deduction | ₹50,000 (old regime) / ₹75,000 (new regime) | ₹75,000 (new regime) — enhanced; old regime ₹75,000 too under new Act rules |
| New vs old regime default | New regime is default | New regime remains default |
| Employee declaration form | Not formally specified (employer practice) | Form 124 — new declaration form for employee regime choice |
| Quarterly TDS return | Form 24Q | Form 138 |
| Annual TDS certificate | Form 16 (Parts A & B) | Form 130 |
| TDS certificate due date | 15 June of next AY | 15 June of next period (same) |
| Section 10 exempt allowances | Section 10(13A) HRA, etc. | Schedule II entries — same benefits, new citation |
| 80C deduction in payroll | Section 80C, max ₹1.5 lakh | Section 123, max ₹1.5 lakh (unchanged) |
The CBDT Cut-off Rule — Which Act Applies for March/April Payments?
This is the most operationally critical issue for payroll teams. The official CBDT FAQ confirmed the rule:
CBDT Rule: The Act governing TDS depends on when "the earlier of credit or payment" occurs. If payment or credit (in books of account) happens on or before 31 March 2026 → Income Tax Act, 1961 (Section 192) applies. If payment or credit happens on or after 1 April 2026 → Income Tax Act, 2025 (Section 392(1)) applies.
March 2026 Salary — Practical Scenarios
| Scenario | Credit/Payment Date | Governing Act | TDS Section |
|---|---|---|---|
| March salary paid on 28 March 2026 | 28 March 2026 | Old Act 1961 | Section 192 |
| March salary paid on 1 April 2026 | 1 April 2026 | New Act 2025 | Section 392(1) |
| Professional fee credited in March books but paid in April | March 2026 (credit date) | Old Act 1961 | Old 194J equivalent |
| Advance payment made in March, credited in April | March 2026 (payment date) | Old Act 1961 | Old Act section |
Most Large Employers Already Clear: Companies that pay March salary before month-end (e.g., 25–31 March) correctly applied Section 192 and old-Act TDS codes for the final Q4 FY 2025-26 return. From April 2026 salary, Section 392(1) applies. Your HRMS must have been updated by April 1 — if not, verify with your vendor and file corrections if needed before Q1 Form 138 is due on 31 July 2026.
The Payroll Reset — What Employers Must Do on 1 April 2026
Every employer must reset TDS computation at the start of Tax Year 2026-27 (1 April 2026). This means:
- Collect fresh employee declarations via Form 124: Employees must re-declare their regime preference (old or new regime) for Tax Year 2026-27. This can be done through your HRMS. If no declaration is received, the employer defaults to the new regime.
- Re-compute projected annual income: Factor in any salary hikes effective April 2026, new allowances, variable pay estimates.
- Recompute TDS and divide by 12 months: New monthly TDS deduction for April 2026 onwards.
- Update ERP and payroll software section codes: Section 192 → Section 392(1) in all system configurations.
- Update vendor payment codes: CBDT has issued new payment codes for Section 393 consolidated TDS (replacing individual 194-series codes). Banks require these new codes for challan generation.
Worked Example — Salary TDS Computation Under New Act (Section 392(1))
Ananya is a software engineer at a Bengaluru company. Tax Year 2026-27. Basic salary: ₹80,000/month. HRA: ₹30,000/month. LTA: ₹6,000/month. Special allowance: ₹20,000/month. She opts for the old tax regime and declares investments of ₹1.5 lakh under Section 123 (old 80C) and pays ₹25,000 health insurance premium (Section 126 / old 80D for self). She lives in Bengaluru paying rent of ₹28,000/month.
🧮 Section 392(1) TDS Computation — Ananya, Old Regime, Tax Year 2026-27
Gross salary (annual)
₹16,32,000
Less: HRA exemption (non-metro 40% of basic)
(₹1,92,000)
Less: LTA exemption (Schedule II)
(₹6,000)
Net taxable salary
₹14,34,000
Less: Standard deduction (Sec 32 / old Sec 16)
(₹75,000)
Income from salary (net)
₹13,59,000
Less: Section 123 deduction (old 80C — ELSS, PPF, etc.)
(₹1,50,000)
Less: Section 126 deduction (old 80D — health insurance)
(₹25,000)
Net Taxable Income
₹11,84,000
Tax (old regime slab: ₹0 + ₹12,500 + ₹1,00,000 + ₹55,200)
₹1,67,700
4% Health & Education Cess
₹6,708
Total Tax Payable
₹1,74,408
Monthly TDS (÷ 12 months)
₹14,534/month
Old vs New Regime Check for Ananya: Under the new regime (Section 171 / old 115BAC), Ananya's taxable income would be ₹13,59,000 (no 80C/80D deductions). Tax: ~₹1,69,000 + cess = ₹1,75,760. Old regime tax = ₹1,74,408. In this case, old regime saves only ₹1,352 — a marginal difference. But with home loan interest, the old regime would save significantly more. Always compute both.
New Forms — What HR and Finance Teams Must Know
Form 138 Replaces Form 24Q
Form 138 is the new quarterly TDS return for salary income under the Income Tax Rules, 2026. Key changes from Form 24Q:
- References Tax Year (not Assessment Year) in the header
- Section reference is "392(1)" instead of "192"
- Annexure II structure is updated to include new deduction section numbers (Section 123, 126, etc.)
- Due dates unchanged: Q1 (Apr–Jun) by 31 July; Q2 (Jul–Sep) by 31 October; Q3 (Oct–Dec) by 31 January; Q4 (Jan–Mar) by 31 May
- The Q4 return contains the final salary computation (Annexure II equivalent) used to generate Form 130
Form 130 Replaces Form 16
Form 130 is the new annual TDS certificate issued by employers to employees. Differences from Form 16:
- Section numbers updated: All old section references (80C, 80D, 10(13A), 16, etc.) replaced with new Act references (123, 126, Schedule II, 32, etc.)
- Part A: TDS summary downloaded from TRACES — same process, different form number and Tax Year field
- Part B: Salary computation uses new Act section numbers
- Issue deadline: 15 June (same as old Form 16)
- First issuance: Employers will issue Form 130 for Tax Year 2026-27 by 15 June 2027
For July 2026 Filing (AY 2026-27): Employees filing ITR by July 2026 (for FY 2025-26 income) will receive old Form 16 from their employer (issued by 15 June 2026). The new Form 130 only applies for Tax Year 2026-27, issued by 15 June 2027. Don't confuse the forms — use old Form 16 for your July 2026 ITR.
Case Study: PayrollHub (250 Employees) — Managing the April 2026 Payroll Reset
HR Director, E-Commerce Company, Delhi NCR — April 2026 Payroll Transition
PayrollHub uses a leading Indian HRMS software. From April 2026, they had to manage the transition for 250 employees. Here's what their HR Director, Neeraj, did:
- Step 1 — Vendor coordination (March 2026): Confirmed with HRMS vendor that Section 192 → 392(1) update was applied. Received vendor confirmation and test run results.
- Step 2 — Employee declarations via Form 124 (1–10 April): All employees submitted fresh tax regime declarations for Tax Year 2026-27. 180 chose new regime, 70 chose old regime.
- Step 3 — Salary structure review (April 2026): Updated for annual increments effective April 2026. Re-ran projection for the full Tax Year 2026-27 for each employee.
- Step 4 — Challan verification (April 25): The monthly TDS challan generated by software showed Section 392(1) and new payment codes. Bank processing confirmed successful deposit.
- Result: Q1 Form 138 filed on time by 31 July 2026 with zero mismatches on TRACES.
Old Quarterly Return
Form 24Q
New Quarterly Return
Form 138
Old TDS Certificate
Form 16
New TDS Certificate
Form 130
Salary TDS Transition — Employer Action Checklist
- Old Act Section 192 → New Act Section 392(1) — update all payroll system configurations
- Collect employee regime declarations via new Form 124 at the start of Tax Year 2026-27
- Default: new regime for employees who don't declare
- March 2026 salary paid before 31 March → old Act (Section 192)
- March 2026 salary paid on or after 1 April → new Act (Section 392(1))
- Quarterly TDS return: Form 24Q → Form 138; first Q1 due 31 July 2026
- Annual TDS certificate: Form 16 → Form 130; first issuance by 15 June 2027
- For July 2026 employee ITR: use old Form 16 (FY 2025-26 income)
- Deduction section numbers: 80C → 123; 80D → 126; HRA → Schedule II; Standard deduction → Section 32
- Verify TRACES challan codes with your bank and software vendor — wrong codes create TDS credit mismatches
Related Calculators
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Frequently Asked Questions
Section 192 of the Income Tax Act, 1961 governed TDS deduction from salary income until 31 March 2026. Section 392(1) of the Income Tax Act, 2025 governs TDS on salary from 1 April 2026 onwards. The mechanics are identical — employer estimates annual salary, computes tax at applicable slab, divides by remaining months, and deducts monthly. Tax rates, slabs, and regime choice are unchanged. What changed: the section number cited, the TDS return form (Form 24Q → Form 138), and the TDS certificate (Form 16 → Form 130). Employers reset TDS computation from 1 April 2026 for Tax Year 2026-27 with fresh Form 124 employee declarations.
The CBDT-confirmed rule: the date of payment or credit in books (whichever is earlier) determines which Act applies — not the salary month. If March 2026 salary was credited to the employee on 31 March 2026 or earlier — Section 192, old Act. If March salary was paid on or after 1 April 2026 — Section 392(1), new Act. For professional fees: if credited in March books but paid in April, the credit date governs — old Act applies. This is confirmed in the official Income Tax Department TDS Compliance FAQ at incometax.gov.in.
Form 24Q (quarterly TDS return for salary) has been replaced by Form 138 under the Income Tax Rules, 2026, effective from Q1 of Tax Year 2026-27. The first Form 138 is due 31 July 2026. Form 16 (TDS certificate) has been replaced by Form 130. Form 130 is due to employees by 15 June each year. The structure is similar — Part A (TDS deposited from TRACES) and Part B (salary computation) — but all section references use new Act numbers. For FY 2025-26 AY 2026-27 (July 2026 ITR), employers issue old Form 16 by 15 June 2026 — Form 130 applies from Tax Year 2026-27 only.
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Source and review trail
Use the current official instrument, portal or regulator publication before acting. This panel separates the category authority from page-specific references.
- Primary category
- Income Tax
- Official starting point
- www.incometax.gov.in
Page source links
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Primary sources & related provisions
Statutory provisions referenced in this guide:
- Form 138 (Quarterly salary and specified senior-citizen TDS…) - Income-tax Forms, 2026
- Form 130 (Certificate under section 395 for tax deducted) - Income-tax Forms, 2026
- Form 124 (Employee statement of claims for tax deduction) - Income-tax Forms, 2026
- Section 392 (Salary and accumulated balance due to an employee; earlier Section 192) - Income-tax Act