Updated 16 October 2026
Before you file: (1) confirm your payroll software outputs Form 138, not Form 24Q; (2) check that salary TDS is reported under section 392 of the Income-tax Act, 2025; (3) reconcile TDS deducted with challans paid for July, August and September.
The quiet compliance reset most payroll teams missed
Form 138 is now the quarterly TDS statement on salary payments for every employer in India. On 1 April 2026, the Income-tax Act, 2025 replaced the Income Tax Act, 1961, and the Income-tax Rules, 2026 renumbered the TDS forms. Most finance and payroll teams knew this was coming. Fewer absorbed how much the forms changed.
Two changes matter most for corporate payroll:
- Form 24Q (quarterly TDS statement on salary) is now Form 138
- Form 16 (annual salary TDS certificate) is now Form 130
Both apply from Tax Year 2026-27 (1 April 2026 onwards).
The first Form 138 (Q1, April to June 2026) was due on 31 July 2026. The second (Q2, July to September 2026) is due on 31 October 2026. If your Q1 statement went out in the old Form 24Q format, check its processing status on TRACES now and fix it before Q2.
This piece is for CFOs, financial controllers and payroll heads. Most treated this as a renumbering exercise. It is not. It is a form-structure, section-reference and reconciliation reset.
What actually changed with Form 138 and Form 130
1. Form 138 replaces Form 24Q. It is the quarterly statement under section 397(3)(b) of the Income-tax Act, 2025 for salary paid to employees under section 392 (the old section 192). The due dates are unchanged: Q1 by 31 July, Q2 by 31 October, Q3 by 31 January, and Q4 by 31 May after the tax year. Payroll systems with hard-coded old section numbers need reconfiguring.
2. Form 130 replaces Form 16. It is the certificate under section 395 and has three parts: Part A (employer and employee details), Part B (summary reconciliation of amounts paid and tax deducted) and Part C (two annexures with the salary and tax computation). It must reach employees by 15 June after the tax year. The deadline is the same; the format is not.
3. Form 138 also covers specified senior citizens. Specified banks use the same Form 138 to report income of specified senior citizens under section 393(1). This matters mainly to banks, but group insurance, retirement or superannuation arrangements are worth a quick review with your tax adviser.
Other TDS forms renumbered:
- Form 26Q (TDS on non-salary payments to residents) is now Form 140
- Form 27Q (TDS on payments to non-residents) is now Form 144
- Form 26AS (annual tax statement) is now Form 168, the Annual Information Statement, where employees see “TDS by employer”
Why this quietly breaks corporate payroll
Four operational faults most large payroll teams have not yet audited:
1. Payroll software. Most payroll software vendors have released Form 138 updates. But installing an update does not mean your TDS chart of accounts, field mappings and statement upload flow are reconfigured. Test the output before you file.
2. Legacy filings and corrections. Statements and corrections for quarters of FY 2025-26 and earlier relate to returns filed under the old Rules, so they follow the old form (Form 24Q). New quarters from April 2026 use Form 138. Do not mix the two; confirm the right utility version with your CA before filing a correction.
3. Employee communication. Employees who receive Form 130 in June 2027 (for Tax Year 2026-27) will not recognise the name. Draft a short FAQ now and send it during the Form 130 window (March to May 2027).
4. Tax-audit and finance controls. Your FY 2026-27 audit will look at the form used, the section references and whether TDS totals match the ledger. Flag any Q1 or Q2 statements with old references and correct them before the audit.
Your Form 138 checklist before 31 October
The remaining Tax Year 2026-27 quarters are Q2 (due 31 October 2026), Q3 (due 31 January 2027) and Q4 (due 31 May 2027). Here is the sequence for Q2.
- Check your Q1 statement. Confirm it was filed as Form 138 with section 392 references and that CPC-TDS has processed it. If anything is wrong, file a correction statement. Corrections are allowed once the original is processed, up to two years from the end of the tax year.
- Confirm your payroll software output. Ask your vendor in writing: “Is our system producing Form 138 in the Income-tax Rules, 2026 format?” Legacy on-premise payroll systems are the most likely to still produce Form 24Q.
- Reconcile Q2. Match TDS deducted from July, August and September salaries against challans deposited, employee by employee, before you prepare the statement.
- Map TDS section references. Update your TDS chart of accounts and reconciliation reports to the new section numbers. Small task, easily forgotten.
- Update templates. Any HR handbook, offer letter or onboarding note that says “Form 16” should say “Form 130 (formerly Form 16)”.
- Plan Form 130 issuance. The first Form 130 goes out by 15 June 2027 for Tax Year 2026-27. Start readiness in January 2027, not May.
Five payroll mistakes visible in Q1 Tax Year 2026-27 statements
Mistake 1: Filed as Form 24Q after the April 2026 change. Some systems defaulted to the old format. Check the processing status on TRACES rather than assuming the upload was fine.
Mistake 2: Right form, old section references. Salary TDS now sits under section 392. Leaving “section 192” in your reports and mappings causes mismatches later.
Mistake 3: Not checking Form 168. Employees now see employer TDS in Form 168 (AIS). If your Form 138 totals do not match what was deposited, employees will spot the gap when they file their returns.
Mistake 4: Planning to issue “Form 16” for Tax Year 2026-27. The certificate for this year is Form 130. Form 16 is the wrong form.
Mistake 5: No comms plan for Form 130. Employees will ask HR why their tax certificate looks different. Draft the answer now.
Where TMS fits
Corporate payroll teams above 100 employees now run parallel TDS work: new-format statements, corrections for older periods and reconciliation with Form 168. That is a full-time compliance workload: at least one senior payroll analyst plus vendor coordination.
TMS runs TDS statements, reconciliation and Form 130 issuance as a managed service. If the Tax Year 2026-27 transition is eating disproportionate bandwidth, the outsourced option takes the compliance work off your internal team and keeps them on people operations.
FAQ
Q: When is the Q2 Form 138 due? By 31 October 2026, for salary TDS deducted from July to September 2026.
Q: What if we filed Q1 Tax Year 2026-27 as Form 24Q by mistake? Check its status on TRACES and take advice on correcting it before you file Q2. Do not simply “start correctly from Q2”; the Q1 problem stays on record.
Q: Can a submitted Form 138 be edited? No. Once CPC-TDS has processed it, you file a correction statement. The time limit is two years from the end of the tax year; for example, a Q3 Tax Year 2026-27 statement can be corrected up to 31 March 2029.
Q: Do we need a new TAN? No. Your existing TAN continues.
Q: Does Form 26AS still exist? It has been replaced by Form 168, the Annual Information Statement. Employer TDS shows there as “TDS by employer”, populated from your Form 138.
Q: What about employees who leave mid-year? They get their Form 130 for the tax year by 15 June after the year ends, like everyone else. Make sure your exit and full and final documents refer to Form 130, not Form 16.
Sources: Income Tax Department, FAQs and guidance notes on Form No. 138 and Form No. 130 under the Income-tax Rules, 2026 (incometaxindia.gov.in). Last reviewed: 16 October 2026. General guidance, not tax advice.
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