Why Section 192 works differently
Every other TDS section says "deduct X% of this payment". Section 192 says something much more ambitious: estimate the employee's total taxable salary for the year, compute the actual income tax on it at slab rates, and deduct one-twelfth of that every month. The employer effectively runs a mini income-tax assessment for each employee, every payroll cycle.
The upside for employees is precision — if the estimate is good, the tax deducted over the year lands very close to their final liability, and their return becomes a formality. The burden for employers is that a payroll change in October (a raise, a bonus, a new declaration) forces a re-estimate and a revised monthly deduction for the remaining months.
If you are new to the deduct → deposit → file → certificate cycle itself, read our TDS basics guide first — everything there (TAN, challans, quarterly statements) applies to salary TDS too.
Step 1: Collect the regime declaration
India currently runs two parallel personal tax regimes — the new regime (lower slab rates, most deductions unavailable, now the default) and the old regime (higher slab rates, but deductions like 80C, 80D and housing-loan interest available on opting in). The choice changes the TDS computation completely, so at the start of the financial year the employer must ask each employee to declare their intended regime.
- If the employee gives no declaration, the employer deducts as per the default regime.
- The declaration to the employer is for TDS purposes only — the employee can still switch at the time of filing their own return (subject to the rules applicable to them).
- Alongside the regime, employees declare planned investments and other income (for example, savings interest or a previous employer's salary), which feed the estimate.
Slab boundaries, standard deduction amounts and rebate limits are revised in Finance Acts, so always compute against the current year's figures on incometax.gov.in rather than remembered numbers.
Step 2: Estimate annual taxable salary
The employer projects the full year: basic, HRA, allowances, bonus, perquisites, employer contributions where taxable — minus exemptions and deductions valid under the chosen regime, minus the standard deduction. The output is the estimated annual taxable income.
Then compute tax on it at slab rates, apply any rebate for lower incomes, and add the health & education cess. That total is the year's expected tax.
Step 3: Spread it over the remaining months
Divide the annual tax by 12 (or by the months remaining, if you are mid-year) and deduct that amount from each month's salary. Re-run the estimate whenever anything material changes — an increment, a bonus payout, an employee finally submitting rent receipts in January.
A worked example
Priya joins your firm at a salary of ₹12,00,000 per year and declares the new regime. Suppose (illustratively — verify current slabs) her tax after the standard deduction and cess works out to ₹60,000 for the year.
| Item | Amount |
|---|---|
| Estimated annual gross salary | ₹12,00,000 |
| Less: standard deduction (current figure per Finance Act) | (₹75,000, e.g.) |
| Estimated taxable income | ₹11,25,000 |
| Tax + cess at current new-regime slabs (illustrative) | ₹60,000 |
| Monthly TDS (₹60,000 ÷ 12) | ₹5,000 |
Each month you pay Priya her salary minus ₹5,000, deposit that ₹5,000 by the 7th of the next month via challan ITNS 281, and report it in the quarterly 24Q statement. If Priya gets a ₹1,00,000 Diwali bonus in October, you recompute: the annual tax rises, and the extra tax gets spread over November–March.
Step 4: Handle the mid-year curveballs
- New joiners mid-year: collect previous-employer salary and TDS details (Form 12B) so you don't double-count the basic exemption slab.
- Proof season (Jan–Feb): declared investments must be backed by proofs; anything unproved gets added back, often producing a painful March deduction. Encourage early submission.
- Other income: employees may declare interest or house-property loss for inclusion — some items can reduce TDS, others only increase it, per the rules.
- Perquisites: ESOPs, company cars and rent-free accommodation have their own valuation rules that feed the salary estimate.
Step 5: File 24Q and issue Form 16
Salary TDS is reported quarterly in Form 24Q (not 26Q, which is for non-salary payments — the split is explained in our TDS return filing guide). The fourth-quarter 24Q carries the full salary annexure for every employee, which is what generates Form 16 — the annual certificate showing salary paid and tax deducted, in two parts:
- Part A — TDS summary, generated from TRACES, challan-verified.
- Part B — the detailed salary computation, prepared by the employer.
Form 16 must reach employees by the prescribed date after year-end (typically mid-June — confirm the current deadline). Employees reconcile it against Form 26AS/AIS and use it to file their return; a mismatch here is the single most common reason employees knock on the payroll team's door in July.
Employer's monthly checklist
- Regime + investment declarations on file for every employee.
- Payroll computes slab-based TDS on the current annual estimate.
- Deposit deducted tax by the 7th of the following month.
- File 24Q each quarter; verify PANs before filing.
- Re-estimate on any salary change; true-up by March payroll.
- Issue Form 16 after Q4 processing; keep proofs archived.
The bookkeeping side — salary expense, TDS payable, net pay — is a three-line journal entry; see our journal entries tutorial for the exact posting, and the income-tax guides for the employee's side of the story. iAccounting's payroll module runs the estimate, the monthly spreading and the re-computation automatically, so a mid-year bonus doesn't mean an evening with a spreadsheet.