TDS on salary under the New Income Tax Act, 2025:

 

Effective from April 1, 2026, the TDS on salary will be governed by the New Income Tax Act, 2025, which simplifies and consolidates existing provisions.

Key provisions for TDS on salary

1.  TDS on salary: Section 392. This section details the rules for deducting tax on salaries, which is a consolidation of the previous Section 192 of the Income Tax Act, 1961.

2.  Deduction based on average rate: The employer is mandated to deduct tax at source based on the average rate of income tax for the tax year.

This is calculated by dividing the employee’s total estimated tax liability for the year by their estimated total annual income

This average rate ensures a smooth, monthly deduction instead of a large, one-time payment.

3.  Employee’s choice of tax regime: The average rate will be calculated based on the tax regime (new or old) that the employee has chosen.

New Tax Regime: The default option, with lower tax rates but fewer deductions.

Old Tax Regime: The optional choice, which allows for various deductions and exemptions.

4.  Employee declaration of income: To ensure an accurate TDS calculation, employees can provide their employer with details of other income or losses from house property. The employer then adjusts the TDS accordingly.

5.  Documentation for tax deduction: The law requires the employer to furnish a certificate to the employee, detailing the tax that has been deducted and other particulars, as prescribed by the tax authorities.

Conclusion:

1.  The transition from the Income Tax Act, 1961 to the Income Tax Act, 2025 marks continuity with simplification.

2.  While the core principle of TDS on salary – deduction at source on estimated annual income at applicable slab rates – remains unchanged, the new Act introduces a streamlined structure and simpler terminology,