How to Manage TDS Compliance for Employee Salaries: A Step-by-Step Guide

TDS on salary from April 2026: what the Income-tax Act, 2025 changes

The single biggest development for salary TDS since this guide was written is the replacement of the Income-tax Act, 1961 with the Income-tax Act, 2025, effective 1 April 2026. The practical mechanics — monthly deduction at the employee's average rate, deposit through the government portal, quarterly reporting, annual certificate — carry over intact. What changes is the numbering and paperwork around them.

• Section renumbering. Salary TDS, long known by "Section 192", sits under a new section number in the 2025 Act. Deposit-default interest and penalty provisions are likewise renumbered. Payroll teams should update process documents, offer letters and payslip footnotes that cite old section numbers.
• New return and certificate forms. For salary paid from April 2026 onwards, the familiar Form 24Q quarterly return and Form 16 certificate are replaced by newly numbered forms notified under the 2025 Act. Returns for periods up to March 2026 continue on the old forms — so during 2026 employers file under both regimes, one for the closing year and one for the new tax year.
• "Tax year" terminology. The 2025 Act drops the assessment-year/previous-year framework for a single "tax year" concept, which simplifies how declarations and proofs are described to employees.

None of this changes the discipline that matters: deduct correctly every month, deposit on time, and reconcile before filing. It does mean payroll software, challan templates and employee communications all need a 2026 refresh — one reason many employers hand this to a payroll outsourcing partner rather than re-training an internal team mid-transition.

The salary TDS compliance calendar

Missing a deposit or filing date is the most common — and most avoidable — TDS failure. The recurring obligations are:

These dates recur alongside PF, ESI and professional tax deadlines; the TMS HR compliance calendar 2026 consolidates them in one view, verified by the TMS compliance team.

Paying TDS online: how the challan process works

TDS on salaries is deposited electronically through the e-Pay Tax facility on the Income Tax portal. The employer logs in with its TAN, selects the relevant challan for TDS payable by the deductor, chooses the salary payment category, and remits through net banking, debit card or authorised-bank modes. The system generates a challan receipt with a CIN (Challan Identification Number) that must be quoted in the quarterly return. Two reconciliation habits prevent most notices: match every month's payroll TDS ledger against challans before filing, and verify that each employee's PAN is correct — a wrong PAN pushes the deduction into a higher rate and blocks the employee's credit.

Frequently asked questions

What is TDS in income tax?

TDS — Tax Deducted at Source — is the mechanism by which tax is collected at the point of payment rather than at year-end. For salaries, the employer estimates the employee's annual tax, deducts one-twelfth of it each month, deposits it with the government and reports it quarterly. The employee then claims this credit when filing their return.

How does TDS on salary differ from TDS on other payments?

Salary TDS is computed at the employee's average tax rate on estimated annual income, after regime selection and declared deductions — not at a flat percentage. TDS on rent, professional fees or contractor payments uses fixed rates on each payment. This is why salary TDS demands a full payroll computation every month rather than a simple rate lookup.

What changes for TDS compliance from April 2026?

The Income-tax Act, 2025 takes effect from 1 April 2026. Deduction logic and due dates are preserved, but section references change and new return and certificate forms replace Form 24Q and Form 16 for FY 2026-27 onwards. Filings for periods up to March 2026 stay on the old forms, so employers straddle both regimes during 2026.

How is TDS paid online?

Through the e-Pay Tax facility on the Income Tax portal using the employer's TAN. The portal generates a challan with a CIN which is later quoted in the quarterly return. Deposit is due by the 7th of the month following deduction.

What happens if TDS is deposited or filed late?

Late deposit attracts interest for every month of delay, and late filing of the quarterly return attracts a per-day fee plus potential penalties. Persistent default can also lead to disallowance of the salary expense and prosecution provisions in extreme cases — which is why deposit dates should be treated as immovable in the payroll cycle.

TMS manages end-to-end salary TDS — computation, deposit, quarterly filings and Form 16 issuance — as part of its payroll and statutory compliance services. Speak to the TMS team for a TDS health check.