Section 392, Income-tax Act 2025: Salary and accumulated balance due to an employee

What is Section 392, and what happened to Section 192?

Section 392 is the new address of salary TDS. The Income-tax Act 2025 gathers the salary rule of the old Section 192 and the provident-fund rule of the old Section 192A into one section, titled "Salary and accumulated balance due to an employee", and applies it from the tax year 2026-27. Nothing about how much is deducted changed: the mechanism, the average rate, the forms and the deadlines all carry straight over.

The heading names its two jobs. "Salary" is the everyday deduction your employer makes from each payslip. "Accumulated balance due to an employee" is the one-off 10% deduction when a recognised provident fund pays out a balance before you have completed five years of service, the ground the old Section 192A held. This page is mostly about the first job, the monthly salary deduction, with the provident-fund rule covered near the end.

One thing is worth fixing in your head: salary TDS sits in Section 392, separate from Section 393, the big table that runs TDS on almost every non-salary payment such as contractor bills, professional fees and rent. If you are an employer deducting from wages, this is your section; if you are paying a vendor, that is the other one.

The section number (392), its title "Salary and accumulated balance due to an employee" and the merger of the old Sections 192 and 192A are cross-checked against published copies of the enacted Act.†

How your employer works out the monthly TDS

The method is an estimate, refined all year. At the start of the year your employer projects what it will pay you across the twelve months, strips out the exemptions and the standard deduction, computes the tax on what is left, and deducts that tax in equal monthly slices. Because the tax is worked on the year as a whole and then divided, the rate that comes off your payslip is an average rate, not the slab rate on your top rupee.

Six steps sit behind every month's figure:

• Estimate the year's salary: basic pay, dearness allowance, bonus, and the money value of any perquisites the employer expects to give you.
• Take out the exempt parts and the standard deduction of ₹75,000 under Section 19 (₹50,000 on the old regime), plus HRA and other exemptions you qualify for.
• Add any other income you have asked the employer to consider, such as bank interest, and set off a loss from house property if you have declared one.
• Subtract the old Section 80C-style deductions you declared, but only if you are on the old regime; the new regime allows almost none.
• Compute the tax on the result under your declared regime, add the 4% health and education cess, and apply the Section 156 rebate if your income qualifies.
• Divide that full-year tax by the number of months left and deduct one slice from each remaining payslip.

Salary TDS is deducted when the salary is paid, not when it accrues, so an arrear or a delayed payment is taxed in the month it actually reaches you.

The average rate, and why your TDS is not a flat percentage

The average rate is simply the full-year tax over the full-year salary. On the ₹18,00,000 salary in the diagram above, ₹1,50,800 of tax is 8.4% of pay, so about 8.4% comes off each month even though the top slice of that salary is taxed at 20%. A colleague on ₹30,00,000 faces a higher average rate, because more of their salary reaches the 30% slab.

This is why two people on the same monthly salary can see different TDS. The employer applies each person's own exemptions, declared deductions and regime before working the average, so a colleague who declared a full old-regime investment basket, or who rents and claims HRA, will show a lower average rate than someone who declared nothing.

What happens when your pay or your proofs change

The estimate is never frozen. Every time a fact changes, a mid-year raise, a bonus, a fresh declaration of investments, the employer re-estimates the full-year tax and re-spreads whatever is still owed over the months that remain. That is why your TDS is rarely identical every month.

The catch is timing. Because any shortfall is recovered from the months left, a change late in the year lands hard. A raise in October, or investment proofs that fall short of what you declared in April, is recovered across only the remaining payslips, so the February and March deductions can spike. Worked example 2 below runs a mid-year raise that pushes a salary past the ₹12 lakh rebate line and lands the whole year's tax in the back half of the year.

Which regime does your employer use, and can you switch later?

The new regime is the default. Under Section 202 your employer deducts on the new-regime slabs unless you tell it, in writing, that you want the old regime for TDS. Miss that intimation and your monthly TDS is computed the new-regime way, whatever your investments.

The declaration to your employer does not lock your final choice. A salaried person with no business income can pick the other regime when filing the return and settle the difference then, as a refund if the employer deducted too much or as a top-up if it deducted too little. The employer's regime decides your monthly cash flow, not the tax you finally owe.

So the practical move is to declare the regime that will actually be cheaper for you as early as April, so the monthly TDS is close to your real tax and you are not chasing a large refund a year later. If you are unsure, the income-tax calculator linked below compares both regimes on your numbers.

Business owners are the exception: someone with business income who leaves the new regime can return to it only once in a lifetime, so their choice is not the free yearly switch a salaried person enjoys.†

What your employer can and cannot count (Section 392(4))

Your employer does not see your whole tax life, and Section 392 limits what it may fold in. You can ask it to take account of income from other sources, bank interest for instance, so more tax is deducted through salary and you avoid an advance-tax gap. But the only loss it may set off against your salary is a loss from house property, typically the interest on a home loan on the old regime. Capital losses, business losses and the like are yours to handle in your return; the employer must ignore them.

That asymmetry is deliberate. Other income can only push your salary TDS up, never down, except for that one house-property loss. It stops an employer from being handed a pile of claimed losses and under-deducting on the strength of them.

Relief for salary arrears is the other adjustment an employer may build in: relief under Section 157 (the old Section 89), claimed by furnishing Form 39 (old Form 10E), can be reflected in the TDS so a lump-sum arrear is not over-taxed in one year.†

Investment-proof season: Form 12BB and the January cliff

Form 12BB is how you tell your employer what to deduct for. At the start of the year you declare, on Form 12BB, the rent you will pay (for HRA), the home-loan interest, the life and health premiums, the Section 123 investments and the rest. The employer deducts on the strength of that declaration, then asks for proof, usually by December or January, before it finalises the year.

The gap between declaring and proving is where the January cliff forms. Declare a ₹1,50,000 investment in April and the employer eases your monthly TDS all year as if it were certain. Fail to actually invest, or miss the proof deadline, and the relief it gave you is clawed back into your last one or two payslips. The fix is boring and effective: declare only what you will really do, and hand in proofs the moment they exist rather than at the January cut-off.

Form 12BB is the standard declaration a salaried employee gives at the start of the year; keep the underlying receipts, because the employer must collect documentary evidence before allowing a claim under Section 392(5).†

TDS on your perquisites, ESOPs and the start-up option

Perquisites are salary too, and they are taxed through the same monthly TDS. Your employer values the taxable perquisites you receive (rent-free or concessional accommodation, a company car used privately, interest-free loans, ESOPs on exercise) under the valuation rules, adds that value to your cash salary, and deducts tax on the total. It then gives you a Form 12BA, a statement itemising each perquisite and its value, alongside your Form 16.

Two eases exist. First, an employer may choose to bear the tax on your non-monetary perquisites itself, paying it out of its own pocket rather than deducting it from you (Section 392(2), the old Section 192(1A)), and the tax it pays is not treated as a further perquisite in your hands. Second, employees of an eligible start-up can defer the TDS on ESOP perquisites: the tax is deducted not on exercise but within fourteen days of the earliest of five years, your leaving the company, or your selling the shares (Section 392(3)).

Perquisite valuation and the start-up deferral carry over from the old Section 192(1A) to (1C); the Section 392(2) and 392(3) references are cross-checked against published copies of the enacted Act.†

Changing jobs mid-year: Form 12B and the double-benefit trap

Switch employers during the year and each one, left to itself, sees only the salary it pays you. Each gives you a full standard deduction, runs you up its own slabs from zero, and may apply the Section 156 rebate as if that part-year salary were your whole income. Two half-pictures deduct far less than the whole would, and the gap surfaces as a demand when you file.

Form 12B closes the gap. Give your new employer a Form 12B reporting your salary and TDS from the old one, and it will estimate tax on your combined salary with a single standard deduction, then deduct the shortfall across your remaining months, instead of leaving you a lump sum plus interest at filing. Worked example 3 shows a job switch where two employers each deduct nil and the filer is left owing ₹78,780.

Form 12B is the employee's declaration of previous-employer salary to the new employer, so the new employer's Form 16 can then cover the combined salary for the year.

The provident-fund rule inside Section 392 (old Section 192A)

The second half of Section 392 is a narrow but common deduction. When a recognised provident fund pays you an accumulated balance and you have not completed five years of continuous service, the fund deducts TDS at 10% before paying you, provided the taxable balance is ₹50,000 or more. Complete five years, or move the balance to your new employer's fund rather than withdrawing it, and no TDS applies.

Two details bite. Without a valid PAN the rate is not 10% but the maximum marginal rate, so always give the fund your PAN. And if your total income for the year is below the taxable limit, you can file Form 15G (Form 15H for senior citizens) with the fund to stop the deduction, so there is nothing to reclaim later.

The ₹50,000 floor, the five-year test and the 10% rate carry over from the old Section 192A into Section 392(6) and (7).†

Forms, deposit dates and how you check the credit

Your employer needs a TAN and runs to a fixed clock. Tax deducted in a month is deposited by the 7th of the next month, except March, which is allowed until 30 April. Every quarter it files a salary TDS statement (Form 24Q), and after the year ends it issues you Form 16 by 15 June, the certificate that shows your salary, the exemptions and deductions allowed, and the tax deducted.

Check it against your own record before you file. Every rupee deducted against your PAN appears in your Form 26AS and your Annual Information Statement (AIS) on the income-tax portal. Match Form 16 to both; if your employer deducted tax but has not filed its Form 24Q, the credit will be missing from your 26AS, and claiming a credit the department cannot see is a standard trigger for a mismatch notice.

The 2025 Act reissues the salary TDS forms under new numbers, but Form 16 (the certificate) and Form 24Q (the quarterly statement) still describe the same documents.†

What you should actually do about salary TDS

Declare early and honestly. Your single most useful move is to give the employer a realistic Form 12BB in April, naming the regime that is actually cheaper for you and only the deductions you will genuinely make. That keeps each month's TDS close to your real tax, so you neither hand the government an interest-free loan through excess TDS nor face a February cliff. A ₹1,50,000 old-regime investment declared in April eases roughly ₹31,200 of tax at the 20% slab, cess included, evenly across the year; declared in January, the same relief compresses into your last two payslips.

Ask the employer to fold in your side income. If you earn bank or FD interest, report it on Form 12BB so the tax comes off your salary through the year. That spares you the advance-tax instalment dates and the Section 234B and 234C interest that catches people who leave a lump of tax to the end.

On a job switch, carry your Form 12B to the new employer on day one, and open your AIS in June before you file. A pensioner or anyone whose slab tax is nil should lodge Form 15G or 15H with the bank and the PF office at the start of the year, so nothing is over-deducted in the first place.

Worked examples

Section 392 FAQs