Salary TDS TY 2026-27: New vs Old Regime, Employer Declaration & Monthly Calculation
Updated for TY 2026-27: Salary paid from April 2026 onward is governed by the Income-tax Act, 2025. Employers should reset payroll TDS calculations for the new tax year using the employee's estimated annual income, applicable regime and eligible deductions.
Salary TDS for TY 2026-27
Salary TDS is not a flat percentage. The employer estimates the employee's taxable salary and other declared income for the year, applies the chosen tax regime and eligible deductions, computes annual tax, and spreads the remaining liability across the months left in the tax year.
| Item | TY 2026-27 treatment |
|---|---|
| Governing law | Income-tax Act, 2025 for salary paid on or after 1 April 2026 |
| Default approach | New tax regime unless the employee validly chooses otherwise where permitted |
| Employer calculation | Estimated annual taxable income and tax divided over remaining payroll months |
| Employer NPS contribution | Eligible deduction subject to current law; 14% of salary is reflected in current Income Tax Department guidance for all categories of employers |
New-regime slab structure for AY 2026-27 reference
| Taxable income | Rate |
|---|---|
| Up to ₹4,00,000 | Nil |
| ₹4,00,001–₹8,00,000 | 5% |
| ₹8,00,001–₹12,00,000 | 10% |
| ₹12,00,001–₹16,00,000 | 15% |
| ₹16,00,001–₹20,00,000 | 20% |
| ₹20,00,001–₹24,00,000 | 25% |
| Above ₹24,00,000 | 30% |
The final payroll tax depends on the employee's full estimated income, rebate eligibility, surcharge where relevant, cess and deductions/exemptions permitted under the chosen regime.
Employer checklist
- Obtain the employee's regime/intimation as required by payroll policy and current law.
- Estimate salary, bonus, taxable perquisites and other declared income.
- Allow only deductions/exemptions supported under the selected regime.
- Consider eligible employer NPS contribution and other payroll-linked deductions.
- Recalculate TDS whenever salary, bonus, investment declaration or previous-employer income changes.
- Keep documentary support and year-end evidence for payroll records.
Employee checklist
- Submit previous-employer salary/TDS details after a job change.
- Do not claim the same deduction twice.
- Check Form 26AS/AIS and salary TDS before filing the return.
- Review payroll tax after a large bonus or arrear payment.
Does salary TDS change automatically when salary changes?
The employer should revise the annual estimate and adjust remaining-month TDS so the total deduction reflects the updated estimated liability.
Which law applies from April 2026?
The Income Tax Department's transition guidance states that salary paid from April 2026 is governed by the Income-tax Act, 2025.
Can an employer consider NPS contribution?
Yes, subject to the conditions of the current law. Income Tax Department guidance for AY 2026-27 reflects a 14% of salary deduction limit for employer contribution under the corresponding NPS provision.
Official reference
Frequently Asked Questions
What should I know about Salary TDS for TY 2026-27?
Salary TDS is not a flat percentage. The employer estimates the employee's taxable salary and other declared income for the year, applies the chosen tax regime and eligible deductions, computes annual tax, and spreads the remaining liability across the months left in the tax year. Item TY 2026-27 treatment Governing law Income-tax Act, 2025 for salary paid o
What should I know about Employer checklist?
Obtain the employee's regime/intimation as required by payroll policy and current law. Estimate salary, bonus, taxable perquisites and other declared income. Allow only deductions/exemptions supported under the selected regime. Consider eligible employer NPS contribution and other payroll-linked deductions. Recalculate TDS whenever salary, bonus, investment
What should I know about Employee checklist?
Submit previous-employer salary/TDS details after a job change. Do not claim the same deduction twice. Check Form 26AS/AIS and salary TDS before filing the return. Review payroll tax after a large bonus or arrear payment. Does salary TDS change automatically when salary changes? The employer should revise the annual estimate and adjust remaining-month TDS so
What should I verify first?
Check the applicable period, conditions and latest official source.
Can the position change?
Yes. Rules, procedures and portal instructions can change, so verify the current position before acting.
What records should I keep?
Keep supporting documents, calculations, acknowledgements and relevant correspondence.
What if my facts differ?
Apply the guidance to your actual facts because dates, amounts, status and documentation can affect the result.
Where should I verify the final position?
Use the official source linked or identified in the article.
Should I rely on an old deadline?
No. Confirm the current period and effective date.
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