CHAPTER XVII — COLLECTION AND RECOVERY OF TAX · B.—DEDUCTION AT SOURCE
CHAPTER XVII — COLLECTION AND RECOVERY OF TAX · B.—DEDUCTION AT SOURCE
Section 192 — Salary (Tax Deducted at Source)
Case Laws & Commentary · Income-tax Act, 1961 (as amended by the Finance Act, 2026) · bharattax.co Treatise
Status: Live. The foundational and most heavily litigated TDS provision.
Finance Act, 2026: No amendment. (The First Schedule rate-tables and the substituted offence provision in section 276B, effective 1 March 2026, operate around — not upon — section 192.)
Mechanism: Any person responsible for paying salary deducts tax at the time of payment, at the employee's average rate on his estimated salary income for the financial year, after building in eligible exemptions, deductions, section 89 relief and reported other-head TDS.
Litigation profile: Treatise-grade. The decisive questions are the bona fides of the employer's estimate, whether a receipt is 'salary' at all, the existence and valuation of perquisites, and the default consequences under sections 201/271C/40(a).
A. SECTION COMMENTARY
Section 192 is the oldest and conceptually the most distinctive of the deduction-at-source provisions. Unlike every other section in Part B, which fastens on a defined kind of payment and a flat rate, section 192 requires the person responsible for paying "income chargeable under the head 'Salaries'" to deduct tax at the time of payment at the employee's own average rate of income-tax, computed on the estimated salary income for the whole financial year. The deductor is therefore not a mechanical collector applying a single percentage; he is required to perform, in advance and across the year, very nearly the computation the Assessing Officer would make — estimating the year's salary, allowing the exemptions, deductions and rebates available to the employee, and spreading the resulting liability over the months of payment.
The 'estimate' is the heart of the section
Because the obligation is to deduct on the employee's 'estimated income', the lawfulness of the deduction is judged by the bona fides of that estimate, not by the figure ultimately assessed. If the employer makes a fair and honest estimate on the material available, a later difference between the estimate and the assessed income does not, by itself, convert him into an 'assessee in default' under section 201. This 'bona fide estimate' principle, repeatedly affirmed, is what protects employers who in good faith accept an employee's declarations as to allowances, perquisites and eligible deductions.
What is 'salary' — the gateway question
Section 192 bites only on amounts chargeable under the head 'Salaries' (sections 15–17). Whether a particular receipt answers that description is the recurring battleground. A contractual commission computed as a fixed percentage of turnover earned by an employee is 'salary'; allowances such as dearness, house-rent and city-compensatory allowance are taxable salary subject to the specific exemptions; but a sum that reaches the employee from a third party with no contractual nexus to the employer-employee relationship — the classic example being tips collected from customers and disbursed by the employer — is not 'salary' paid 'by or on behalf of' the employer, and section 192 is not attracted to it.
Perquisites and the limits of deeming
The valuation of perquisites under section 17(2) and Rule 3 has generated constitutional-level litigation. The settled position is that a 'perquisite' presupposes a benefit to which the employee has a vested right, and that the existence of a 'concession' (for instance in rent-free or concessional accommodation) is a jurisdictional fact that must be found to exist before any valuation rule can be applied; a valuation rule cannot be used to manufacture the very perquisite it purports to value. Section 192(1A)–(1B) separately permits the employer to bear the tax on non-monetary perquisites without grossing-up the perquisite itself, a facility that interacts with the general grossing-up rule in section 195A and with the principle that tax borne by another on the employee's behalf is itself income.
Multiple employers, other income and reliefs
Sub-sections (2) to (2D) build a self-contained machinery: an employee with successive or simultaneous employers may consolidate his salary for deduction through one chosen employer; he may report other-head income and TDS so that aggregate deduction is correct (but never so as to reduce the salary TDS except where a house-property loss is set off); he is entitled to have section 89 relief built into the deduction; and the employer must obtain prescribed evidence of claimed deductions and furnish a correct statement of perquisites. Sub-sections (4)–(6) deal with provident-fund and superannuation payments and salary in foreign currency.
Default, interest and penalty
Failure to deduct, or short deduction, exposes the employer to recovery under section 201(1), interest under section 201(1A) and penalty under section 271C, and the sum may be disallowed in the employer's hands under section 40(a)(ia)/(iii). But where the recipient has himself paid the tax, the deductor cannot be made to pay the tax over again under section 201(1) (interest until the date of the payee's payment survives). These consequences are dealt with section-by-section in the commentaries on sections 201, 271C and 40(a), and the leading salary authorities below are read with them.
B. STATUTORY POSITION (verbatim text)
Reproduced from the Income-tax Act, 1961 as amended up to the Finance Act, 2025 (the Finance Act, 2026 makes no amendment to this section). Editorial markers “***” denote text omitted by the Legislature.
192.(1) Any person responsible for paying any income chargeable under the head "Salaries" shall, at the time of payment, deduct income-tax on the amount payable at the average rate of income-tax computed on the basis of the rates in force for the financial year in which the payment is made, on the estimated income of the assessee under this head for that financial year.
(1A) Without prejudice to the provisions contained in sub-section (1), the person responsible for paying any income in the nature of a perquisite which is not provided for by way of monetary payment, referred to in clause (2) of section 17, may pay, at his option, tax on the whole or part of such income without making any deduction therefrom at the time when such tax was otherwise deductible under the provisions of sub-section
(1).
(1B) For the purpose of paying tax under sub-section (1A), tax shall be determined at the average of income-tax computed on the basis of the rates in force for the financial year, on the income chargeable under the head "Salaries" including the income referred to in sub-section (1A), and the tax so payable shall be construed as if it were, a tax deductible at source, from the income under the head "Salaries" as per the provisions of sub-section (1), and shall be subject to the provisions of this Chapter.
(1C) For the purposes of deducting or paying tax under sub-section (1) or sub-section (1A), as the case may be, a person, being an eligible start-up referred to in section 80-IAC, responsible for paying any income to the assessee being perquisite of the nature specified in sub-clause (vi) of clause (2) of section 17 in any previous year relevant to the assessment year, beginning on or after the 1st day of April, 2021, shall deduct or pay, as the case may be, tax on such income within fourteen days—
(i) after the expiry of forty-eight months from the end of the relevant assessment year; or
(ii) from the date of the sale of such specified security or sweat equity share by the assessee; or
(iii) from the date of the assessee ceasing to be the employee of the person, whichever is the earliest, on the basis of rates in force for the financial year in which the said specified security or sweat equity share is allotted or transferred.
(2) Where, during the financial year, an assessee is employed simultaneously under more than one employer, or where he has held successively employment under more than one employer, he may furnish to the person responsible for making the payment referred to in sub-section (1) (being one of the said employers as the assessee may, having regard to the circumstances of his case choose), such details of the income under the head "Salaries" due or received by him from the other employer or employers, the tax deducted at source therefrom and such other particulars, in such form and verified in such manner as may be prescribed, and thereupon the person responsible for making the payment referred to above shall take into account the details so furnished for the purposes of making the deduction under sub-section (1).
(2A) Where the assessee, being a Government servant or an employee in a company, co-operative society, local authority, university, institution, association or body is entitled to the relief under *** section 89, he may furnish to the person responsible for making the payment referred to in sub-section (1), such particulars, in such form and verified in such manner as may be prescribed, and thereupon the person responsible as aforesaid shall compute the relief on the basis of such particulars and take it into account in making the deduction under sub-section (1).
Explanation.—For the purposes of this sub-section, "University" means a University established or incorporated by or under a Central, State or Provincial Act, and includes an institution declared under section 3 of the University Grants Commission Act, 1956 (3 of 1956), to be a University for the purposes of that Act. (2B) Where an assessee who receives any income chargeable under the head "Salaries" has, in addition, —
(i) any income chargeable under any other head of income (not being a loss under any such head other than the loss under the head "Income from house property"); or
(ii) any tax deducted or collected under the provisions of Part B or Part BB of this Chapter, as the case may be, for the same financial year, he may send to the person responsible for making the payment referred to in sub-section (1), the particulars of—
(a) such other income;
(b) any tax deducted or collected under any other provision of Part B or Part BB of this Chapter, as the case may be; and
(c) the loss, if any, under the head "Income from house property", in such form and verified in such manner as may be prescribed, and thereupon the person responsible as aforesaid shall take into account the particulars referred to in clauses (a), (b) and (c) for the purposes of making the deduction under sub-section (1):
Provided that this sub-section shall not in any case have the effect of reducing the tax deductible from income under the head "Salaries", except where the loss under the head "Income from house property" and the tax deducted in accordance with other provisions of Part B and tax collected in accordance with the provisions of Part BB, of this Chapter, has been taken into account.
(2C) A person responsible for paying any income chargeable under the head "Salaries" shall furnish to the person to whom such payment is made a statement giving correct and complete particulars of perquisites or profits in lieu of salary provided to him and the value thereof in such form and manner as may be prescribed.
(2D) The person responsible for making the payment referred to in sub-section (1) shall, for the purposes of estimating income of the assessee or computing tax deductible under sub-section (1), obtain from the assessee the evidence or proof or particulars of prescribed claims (including claim for set-off of loss) under the provisions of the Act in such form and manner as may be prescribed.
(3) The person responsible for making the payment referred to in sub-section (1) or sub-section (1A) or sub-section (2) or sub-section (2A) or sub-section (2B) may, at the time of making any deduction, increase or reduce the amount to be deducted under this section for the purpose of adjusting any excess or deficiency arising out of any previous deduction or failure to deduct during the financial year.
(4) The trustees of a recognised provident fund, or any person authorised by the regulations of the fund to make payment of accumulated balances due to employees, shall, in cases where sub-rule (1) of rule 9 of Part A of the Fourth Schedule applies, at the time an accumulated balance due to an employee is paid, make therefrom the deduction provided in rule 10 of Part A of the Fourth Schedule.
(5) Where any contribution made by an employer, including interest on such contributions, if any, in an approved superannuation fund is paid to the employee, tax on the amount so paid shall be deducted by the trustees of the fund to the extent provided in rule 6 of Part B of the Fourth Schedule.
(6) For the purposes of deduction of tax on salary payable in foreign currency, the value in rupees of such salary shall be calculated at the prescribed rate of exchange.
C. AUTHORITIES
The authorities are arranged by the four questions that decide a section 192 dispute: (1) the nature and bona fides of the employer's estimate; (2) whether the receipt is 'salary' at all; (3) the valuation of perquisites; and (4) the consequences of default. All citations have been web-verified.
Cluster 1 — The estimate, extra-territorial reach and the employer's duty
CIT v. Eli Lilly & Co. (India) (P) Ltd. (2009) 312 ITR 225 (SC)
Issue: Whether 'home salary' paid abroad by a foreign company to expatriates seconded to work in an Indian joint venture attracts TDS under section 192, and the consequences of non-deduction.
Held: Section 192 applies: there was a clear nexus between the home salary and services rendered in India, so the Indian entity was bound to deduct on the whole remuneration. However, section 201(1)/(1A) and penalty proceedings are not automatic — they turn on whether the failure was bona fide; interest under section 201(1A) is compensatory and mandatory for the period of default, but penalty under section 271C requires absence of reasonable cause.
Significance: The leading modern statement on the reach of section 192 and on the bona-fide-estimate / reasonable-cause filter that governs default consequences.
CIT v. Larsen & Toubro Ltd. / CIT v. ITI Ltd. (2009) 313 ITR 1 (SC)
Issue: Whether an employer deducting under section 192 must collect and verify documentary proof that employees actually utilised leave travel concession and conveyance allowance.
Held: No. There is no provision or CBDT circular requiring the employer to collect supporting evidence of utilisation; a declaration/certificate from the employee is sufficient for the purpose of the section 192 estimate. The employer is not expected to make a roving enquiry.
Significance: Defines the practical limit of the employer's duty of verification and underpins the bona-fide-estimate defence.
Bona fide estimate — the governing principle
Principle: Because section 192(1) fixes the obligation by reference to 'estimated income', an employer who makes a fair and honest estimate on the available material is not an 'assessee in default' merely because the estimate later proves short; the test is the honesty of the estimate, not arithmetical exactness (as recognised in Eli Lilly, supra, and consistently applied by the High Courts).
Use: Anchors the defence to section 201/271C proceedings arising out of salary deductions.
Cluster 2 — What is 'salary' chargeable under sections 15–17
ITC Ltd. v. CIT (2016) 384 ITR 14 (SC)
Issue: Whether tips collected from customers and disbursed by a hotel to its staff are 'salary' on which the employer must deduct under section 192.
Held: No. Tips are paid by customers, not by the employer, and the employee has no vested contractual right against the employer to them; such receipts are not 'salary' or 'profits in lieu of salary' paid by or on behalf of the employer, and section 192 is not attracted (they may be taxable in the employee's hands under 'other sources').
Significance: Marks the outer boundary of 'salary' for section 192 — the payment must flow from the employment relationship with the employer.
Issue: Whether commission paid to salesmen as a fixed percentage of turnover is part of 'salary'.
Held: Yes. Commission paid under the terms of employment, computed as a fixed percentage of turnover achieved, is remuneration for services and falls within 'salary'; it is not a payment of a different character.
Significance: Establishes that contractual, performance-linked commission is 'salary' for the purposes of the salary provisions, and hence within section 192.
Karamchari Union v. Union of India (2000) 243 ITR 143 (SC)
Issue: Whether dearness allowance, house-rent allowance and city-compensatory allowance form part of taxable salary.
Held: Yes. DA, HRA and CCA are taxable as salary (subject to the specific statutory exemptions, such as section 10(13A) for HRA); they are not immune from tax merely because they meet additional cost of living.
Significance: Confirms the wide base on which the section 192 estimate must be built, exemptions apart.
Cluster 3 — Perquisites: vested right, 'concession' and tax borne by the employer
Arun Kumar v. Union of India (2006) 286 ITR 89 (SC)
Issue: Validity and scope of Rule 3 valuing rent-free / concessional accommodation under section 17(2)(ii).
Held: Rule 3 is valid, but 'concession' in section 17(2)(ii) is a jurisdictional fact: a perquisite exists only if a concession in rent is in fact granted. The valuation rule cannot be invoked to deem a concession into existence; the existence of the perquisite must be established under the section before the rule can value it.
Significance: Controls the perquisite component of the salary estimate — the employer must first find a real perquisite before valuing it under the Rules.
CIT v. L.W. Russel (1964) 53 ITR 91 (SC)
Issue: Whether an employer's contingent contribution to a superannuation scheme is a 'perquisite' taxable in the employee's hands.
Held: No. A 'perquisite' (and 'profits in lieu of salary') presupposes a vested right in the employee at the time of the contribution; where the employee's interest is contingent (here, on surviving to superannuation), the contribution is not a perquisite.
Significance: The foundational 'vested right' test that governs whether a benefit is a perquisite includible in the section 192 base.
Emil Webber v. CIT (1993) 200 ITR 483 (SC)
Issue: Whether income-tax on an employee's remuneration, discharged by a third party/employer on his behalf, is itself income of the employee.
Held: Yes. An obligation of the assessee discharged by someone else is a benefit accruing to him and is income; tax borne on his behalf is taxable in his hands.
Significance: Underlies the grossing-up logic of sections 192(1A)/195A — where the employer bears tax on a perquisite, that benefit is itself income and must be accounted for in the deduction.
Cluster 4 — Consequences of default (read with sections 201, 271C, 40(a))
Principle: Where the recipient has paid the tax on his income, the deductor cannot be required to pay the same tax over again under section 201(1); interest under section 201(1A) nonetheless runs from the date tax was deductible to the date the payee paid it.
Use: Limits recovery from the employer for short/non-deduction of salary TDS once the employee's own tax is paid; central to quantifying the section 201 exposure.
Cross-references
Note: The penalty for failure to deduct (section 271C) requires absence of 'reasonable cause' (section 273B); disallowance of salary in the employer's hands for non-deduction is governed by section 40(a)(iii)/(ia). These are treated in the dedicated commentaries on sections 201, 271C and 40(a), with which this cluster is to be read.
Compiled for the bharattax.co Treatise on the Income-tax Act, 1961 (as amended by the Finance Act, 2026). Statutory text is reproduced verbatim from the bare Act; case-law citations have been web-verified. Where a section is new, narrow or substantially unlitigated, the candour rule is observed — the absence of direct authority is stated and only genuinely cognate authority is offered. This digest is for professional reference and is not a substitute for the official report of any judgment.
CHAPTER XVII — COLLECTION AND RECOVERY OF TAX · B.—DEDUCTION AT SOURCE
Section 192 — Salary (Tax Deducted at Source)
Case Laws & Commentary · Income-tax Act, 1961 (as amended by the Finance Act, 2026) · bharattax.co Treatise
Status: Live. The foundational and most heavily litigated TDS provision.
Finance Act, 2026: No amendment. (The First Schedule rate-tables and the substituted offence provision in section 276B, effective 1 March 2026, operate around — not upon — section 192.)
Mechanism: Any person responsible for paying salary deducts tax at the time of payment, at the employee's average rate on his estimated salary income for the financial year, after building in eligible exemptions, deductions, section 89 relief and reported other-head TDS.
Litigation profile: Treatise-grade. The decisive questions are the bona fides of the employer's estimate, whether a receipt is 'salary' at all, the existence and valuation of perquisites, and the default consequences under sections 201/271C/40(a).
A. SECTION COMMENTARY
Section 192 is the oldest and conceptually the most distinctive of the deduction-at-source provisions. Unlike every other section in Part B, which fastens on a defined kind of payment and a flat rate, section 192 requires the person responsible for paying "income chargeable under the head 'Salaries'" to deduct tax at the time of payment at the employee's own average rate of income-tax, computed on the estimated salary income for the whole financial year. The deductor is therefore not a mechanical collector applying a single percentage; he is required to perform, in advance and across the year, very nearly the computation the Assessing Officer would make — estimating the year's salary, allowing the exemptions, deductions and rebates available to the employee, and spreading the resulting liability over the months of payment.
The 'estimate' is the heart of the section
Because the obligation is to deduct on the employee's 'estimated income', the lawfulness of the deduction is judged by the bona fides of that estimate, not by the figure ultimately assessed. If the employer makes a fair and honest estimate on the material available, a later difference between the estimate and the assessed income does not, by itself, convert him into an 'assessee in default' under section 201. This 'bona fide estimate' principle, repeatedly affirmed, is what protects employers who in good faith accept an employee's declarations as to allowances, perquisites and eligible deductions.
What is 'salary' — the gateway question
Section 192 bites only on amounts chargeable under the head 'Salaries' (sections 15–17). Whether a particular receipt answers that description is the recurring battleground. A contractual commission computed as a fixed percentage of turnover earned by an employee is 'salary'; allowances such as dearness, house-rent and city-compensatory allowance are taxable salary subject to the specific exemptions; but a sum that reaches the employee from a third party with no contractual nexus to the employer-employee relationship — the classic example being tips collected from customers and disbursed by the employer — is not 'salary' paid 'by or on behalf of' the employer, and section 192 is not attracted to it.
Perquisites and the limits of deeming
The valuation of perquisites under section 17(2) and Rule 3 has generated constitutional-level litigation. The settled position is that a 'perquisite' presupposes a benefit to which the employee has a vested right, and that the existence of a 'concession' (for instance in rent-free or concessional accommodation) is a jurisdictional fact that must be found to exist before any valuation rule can be applied; a valuation rule cannot be used to manufacture the very perquisite it purports to value. Section 192(1A)–(1B) separately permits the employer to bear the tax on non-monetary perquisites without grossing-up the perquisite itself, a facility that interacts with the general grossing-up rule in section 195A and with the principle that tax borne by another on the employee's behalf is itself income.
Multiple employers, other income and reliefs
Sub-sections (2) to (2D) build a self-contained machinery: an employee with successive or simultaneous employers may consolidate his salary for deduction through one chosen employer; he may report other-head income and TDS so that aggregate deduction is correct (but never so as to reduce the salary TDS except where a house-property loss is set off); he is entitled to have section 89 relief built into the deduction; and the employer must obtain prescribed evidence of claimed deductions and furnish a correct statement of perquisites. Sub-sections (4)–(6) deal with provident-fund and superannuation payments and salary in foreign currency.
Default, interest and penalty
Failure to deduct, or short deduction, exposes the employer to recovery under section 201(1), interest under section 201(1A) and penalty under section 271C, and the sum may be disallowed in the employer's hands under section 40(a)(ia)/(iii). But where the recipient has himself paid the tax, the deductor cannot be made to pay the tax over again under section 201(1) (interest until the date of the payee's payment survives). These consequences are dealt with section-by-section in the commentaries on sections 201, 271C and 40(a), and the leading salary authorities below are read with them.
B. STATUTORY POSITION (verbatim text)
Reproduced from the Income-tax Act, 1961 as amended up to the Finance Act, 2025 (the Finance Act, 2026 makes no amendment to this section). Editorial markers “***” denote text omitted by the Legislature.
192.(1) Any person responsible for paying any income chargeable under the head "Salaries" shall, at the time of payment, deduct income-tax on the amount payable at the average rate of income-tax computed on the basis of the rates in force for the financial year in which the payment is made, on the estimated income of the assessee under this head for that financial year.
(1A) Without prejudice to the provisions contained in sub-section (1), the person responsible for paying any income in the nature of a perquisite which is not provided for by way of monetary payment, referred to in clause (2) of section 17, may pay, at his option, tax on the whole or part of such income without making any deduction therefrom at the time when such tax was otherwise deductible under the provisions of sub-section
(1).
(1B) For the purpose of paying tax under sub-section (1A), tax shall be determined at the average of income-tax computed on the basis of the rates in force for the financial year, on the income chargeable under the head "Salaries" including the income referred to in sub-section (1A), and the tax so payable shall be construed as if it were, a tax deductible at source, from the income under the head "Salaries" as per the provisions of sub-section (1), and shall be subject to the provisions of this Chapter.
(1C) For the purposes of deducting or paying tax under sub-section (1) or sub-section (1A), as the case may be, a person, being an eligible start-up referred to in section 80-IAC, responsible for paying any income to the assessee being perquisite of the nature specified in sub-clause (vi) of clause (2) of section 17 in any previous year relevant to the assessment year, beginning on or after the 1st day of April, 2021, shall deduct or pay, as the case may be, tax on such income within fourteen days—
(i) after the expiry of forty-eight months from the end of the relevant assessment year; or
(ii) from the date of the sale of such specified security or sweat equity share by the assessee; or
(iii) from the date of the assessee ceasing to be the employee of the person, whichever is the earliest, on the basis of rates in force for the financial year in which the said specified security or sweat equity share is allotted or transferred.
(2) Where, during the financial year, an assessee is employed simultaneously under more than one employer, or where he has held successively employment under more than one employer, he may furnish to the person responsible for making the payment referred to in sub-section (1) (being one of the said employers as the assessee may, having regard to the circumstances of his case choose), such details of the income under the head "Salaries" due or received by him from the other employer or employers, the tax deducted at source therefrom and such other particulars, in such form and verified in such manner as may be prescribed, and thereupon the person responsible for making the payment referred to above shall take into account the details so furnished for the purposes of making the deduction under sub-section (1).
(2A) Where the assessee, being a Government servant or an employee in a company, co-operative society, local authority, university, institution, association or body is entitled to the relief under *** section 89, he may furnish to the person responsible for making the payment referred to in sub-section (1), such particulars, in such form and verified in such manner as may be prescribed, and thereupon the person responsible as aforesaid shall compute the relief on the basis of such particulars and take it into account in making the deduction under sub-section (1).
Explanation.—For the purposes of this sub-section, "University" means a University established or incorporated by or under a Central, State or Provincial Act, and includes an institution declared under section 3 of the University Grants Commission Act, 1956 (3 of 1956), to be a University for the purposes of that Act. (2B) Where an assessee who receives any income chargeable under the head "Salaries" has, in addition, —
(i) any income chargeable under any other head of income (not being a loss under any such head other than the loss under the head "Income from house property"); or
(ii) any tax deducted or collected under the provisions of Part B or Part BB of this Chapter, as the case may be, for the same financial year, he may send to the person responsible for making the payment referred to in sub-section (1), the particulars of—
(a) such other income;
(b) any tax deducted or collected under any other provision of Part B or Part BB of this Chapter, as the case may be; and
(c) the loss, if any, under the head "Income from house property", in such form and verified in such manner as may be prescribed, and thereupon the person responsible as aforesaid shall take into account the particulars referred to in clauses (a), (b) and (c) for the purposes of making the deduction under sub-section (1):
Provided that this sub-section shall not in any case have the effect of reducing the tax deductible from income under the head "Salaries", except where the loss under the head "Income from house property" and the tax deducted in accordance with other provisions of Part B and tax collected in accordance with the provisions of Part BB, of this Chapter, has been taken into account.
(2C) A person responsible for paying any income chargeable under the head "Salaries" shall furnish to the person to whom such payment is made a statement giving correct and complete particulars of perquisites or profits in lieu of salary provided to him and the value thereof in such form and manner as may be prescribed.
(2D) The person responsible for making the payment referred to in sub-section (1) shall, for the purposes of estimating income of the assessee or computing tax deductible under sub-section (1), obtain from the assessee the evidence or proof or particulars of prescribed claims (including claim for set-off of loss) under the provisions of the Act in such form and manner as may be prescribed.
(3) The person responsible for making the payment referred to in sub-section (1) or sub-section (1A) or sub-section (2) or sub-section (2A) or sub-section (2B) may, at the time of making any deduction, increase or reduce the amount to be deducted under this section for the purpose of adjusting any excess or deficiency arising out of any previous deduction or failure to deduct during the financial year.
(4) The trustees of a recognised provident fund, or any person authorised by the regulations of the fund to make payment of accumulated balances due to employees, shall, in cases where sub-rule (1) of rule 9 of Part A of the Fourth Schedule applies, at the time an accumulated balance due to an employee is paid, make therefrom the deduction provided in rule 10 of Part A of the Fourth Schedule.
(5) Where any contribution made by an employer, including interest on such contributions, if any, in an approved superannuation fund is paid to the employee, tax on the amount so paid shall be deducted by the trustees of the fund to the extent provided in rule 6 of Part B of the Fourth Schedule.
(6) For the purposes of deduction of tax on salary payable in foreign currency, the value in rupees of such salary shall be calculated at the prescribed rate of exchange.
C. AUTHORITIES
The authorities are arranged by the four questions that decide a section 192 dispute: (1) the nature and bona fides of the employer's estimate; (2) whether the receipt is 'salary' at all; (3) the valuation of perquisites; and (4) the consequences of default. All citations have been web-verified.
Cluster 1 — The estimate, extra-territorial reach and the employer's duty
CIT v. Eli Lilly & Co. (India) (P) Ltd. (2009) 312 ITR 225 (SC)
Issue: Whether 'home salary' paid abroad by a foreign company to expatriates seconded to work in an Indian joint venture attracts TDS under section 192, and the consequences of non-deduction.
Held: Section 192 applies: there was a clear nexus between the home salary and services rendered in India, so the Indian entity was bound to deduct on the whole remuneration. However, section 201(1)/(1A) and penalty proceedings are not automatic — they turn on whether the failure was bona fide; interest under section 201(1A) is compensatory and mandatory for the period of default, but penalty under section 271C requires absence of reasonable cause.
Significance: The leading modern statement on the reach of section 192 and on the bona-fide-estimate / reasonable-cause filter that governs default consequences.
CIT v. Larsen & Toubro Ltd. / CIT v. ITI Ltd. (2009) 313 ITR 1 (SC)
Issue: Whether an employer deducting under section 192 must collect and verify documentary proof that employees actually utilised leave travel concession and conveyance allowance.
Held: No. There is no provision or CBDT circular requiring the employer to collect supporting evidence of utilisation; a declaration/certificate from the employee is sufficient for the purpose of the section 192 estimate. The employer is not expected to make a roving enquiry.
Significance: Defines the practical limit of the employer's duty of verification and underpins the bona-fide-estimate defence.
Bona fide estimate — the governing principle
Principle: Because section 192(1) fixes the obligation by reference to 'estimated income', an employer who makes a fair and honest estimate on the available material is not an 'assessee in default' merely because the estimate later proves short; the test is the honesty of the estimate, not arithmetical exactness (as recognised in Eli Lilly, supra, and consistently applied by the High Courts).
Use: Anchors the defence to section 201/271C proceedings arising out of salary deductions.
Cluster 2 — What is 'salary' chargeable under sections 15–17
ITC Ltd. v. CIT (2016) 384 ITR 14 (SC)
Issue: Whether tips collected from customers and disbursed by a hotel to its staff are 'salary' on which the employer must deduct under section 192.
Held: No. Tips are paid by customers, not by the employer, and the employee has no vested contractual right against the employer to them; such receipts are not 'salary' or 'profits in lieu of salary' paid by or on behalf of the employer, and section 192 is not attracted (they may be taxable in the employee's hands under 'other sources').
Significance: Marks the outer boundary of 'salary' for section 192 — the payment must flow from the employment relationship with the employer.
Gestetner Duplicators (P) Ltd. v. CIT (1979) 117 ITR 1 (SC)
Issue: Whether commission paid to salesmen as a fixed percentage of turnover is part of 'salary'.
Held: Yes. Commission paid under the terms of employment, computed as a fixed percentage of turnover achieved, is remuneration for services and falls within 'salary'; it is not a payment of a different character.
Significance: Establishes that contractual, performance-linked commission is 'salary' for the purposes of the salary provisions, and hence within section 192.
Karamchari Union v. Union of India (2000) 243 ITR 143 (SC)
Issue: Whether dearness allowance, house-rent allowance and city-compensatory allowance form part of taxable salary.
Held: Yes. DA, HRA and CCA are taxable as salary (subject to the specific statutory exemptions, such as section 10(13A) for HRA); they are not immune from tax merely because they meet additional cost of living.
Significance: Confirms the wide base on which the section 192 estimate must be built, exemptions apart.
Cluster 3 — Perquisites: vested right, 'concession' and tax borne by the employer
Arun Kumar v. Union of India (2006) 286 ITR 89 (SC)
Issue: Validity and scope of Rule 3 valuing rent-free / concessional accommodation under section 17(2)(ii).
Held: Rule 3 is valid, but 'concession' in section 17(2)(ii) is a jurisdictional fact: a perquisite exists only if a concession in rent is in fact granted. The valuation rule cannot be invoked to deem a concession into existence; the existence of the perquisite must be established under the section before the rule can value it.
Significance: Controls the perquisite component of the salary estimate — the employer must first find a real perquisite before valuing it under the Rules.
CIT v. L.W. Russel (1964) 53 ITR 91 (SC)
Issue: Whether an employer's contingent contribution to a superannuation scheme is a 'perquisite' taxable in the employee's hands.
Held: No. A 'perquisite' (and 'profits in lieu of salary') presupposes a vested right in the employee at the time of the contribution; where the employee's interest is contingent (here, on surviving to superannuation), the contribution is not a perquisite.
Significance: The foundational 'vested right' test that governs whether a benefit is a perquisite includible in the section 192 base.
Emil Webber v. CIT (1993) 200 ITR 483 (SC)
Issue: Whether income-tax on an employee's remuneration, discharged by a third party/employer on his behalf, is itself income of the employee.
Held: Yes. An obligation of the assessee discharged by someone else is a benefit accruing to him and is income; tax borne on his behalf is taxable in his hands.
Significance: Underlies the grossing-up logic of sections 192(1A)/195A — where the employer bears tax on a perquisite, that benefit is itself income and must be accounted for in the deduction.
Cluster 4 — Consequences of default (read with sections 201, 271C, 40(a))
Hindustan Coca-Cola Beverages (P) Ltd. v. CIT (2007) 293 ITR 226 (SC)
Principle: Where the recipient has paid the tax on his income, the deductor cannot be required to pay the same tax over again under section 201(1); interest under section 201(1A) nonetheless runs from the date tax was deductible to the date the payee paid it.
Use: Limits recovery from the employer for short/non-deduction of salary TDS once the employee's own tax is paid; central to quantifying the section 201 exposure.
Cross-references
Note: The penalty for failure to deduct (section 271C) requires absence of 'reasonable cause' (section 273B); disallowance of salary in the employer's hands for non-deduction is governed by section 40(a)(iii)/(ia). These are treated in the dedicated commentaries on sections 201, 271C and 40(a), with which this cluster is to be read.
Compiled for the bharattax.co Treatise on the Income-tax Act, 1961 (as amended by the Finance Act, 2026). Statutory text is reproduced verbatim from the bare Act; case-law citations have been web-verified. Where a section is new, narrow or substantially unlitigated, the candour rule is observed — the absence of direct authority is stated and only genuinely cognate authority is offered. This digest is for professional reference and is not a substitute for the official report of any judgment.