Section 392 — Salary TDS | ITA 2025

Section 392 — - TDS ON SALARY AND ACCUMULATED BALANCE OF RECOGNISED PROVIDENT FUND

Section 392 of the Income-tax Act, 2025 corresponds substantively to sections 192 and 192A of the Income-tax Act, 1961. It is the cornerstone TDS provision for employer-employee remuneration, accommodating the dual-regime architecture (default new regime under s. 202 / s. 115BAC of 1961 and optional old regime), and integrating the FA 2020 rule for taxing employer's contribution to specified funds in excess of INR 7.5 lakhs and the FA 2021 mechanism for adjustment for past employer.

Statutory text — Income-tax Act, 2025

Marginal note -- Salary; Accumulated balance of RPF

(1) Any person responsible for paying any income chargeable under the head “Salaries” shall deduct income-tax on the amount payable and this deduc- tion shall be made at the time of such payment at the average rate of income-tax computed on the basis of the rates in force for the tax year in which the payment is made, on the estimated income of the assessee under this head for such year. (2)(a) Without prejudice to the provisions of sub-section (1), the person responsible for paying any income in the nature of a non-monetary perquisite chargeable to tax under section 17(1), 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 deductible under sub-section (1);

(b) the tax under clause (a) shall be determined at the average rate as per sub-sec- tion (1), on the income chargeable under the head “Salaries” including the income referred to in the said clause, and shall be construed as if it were a tax deductible at source from the income under the head “Salaries”, and be subject to the provisions of this Chapter.

(3) Any person, being an eligible start-up referred to in section 140, responsible for paying any income of the nature specified in section 17(1)(d) in any tax year, shall deduct or pay, as the case may be, tax on such income, on the basis of rates in force for the tax year in which the specified security or sweat equity share is allotted or transferred, within the time as specified for the payee in section 289(3). (4)(a) The person responsible for making payment under sub-section (1), shall take into account the following particulars furnished by the assessee, at his option, in such form and verified in such manner as may be prescribed, for the purpose of making deduction under the said sub-section and such particulars shall have an effect of increasing or decreasing the tax to be deducted:—

(i) any income under the head “Salaries” due or received by the assessee, from any other employer or employers during the tax year;

(ii) any relief allowable under section 157, where the assessee being a Gov- ernment servant, or an employee in a company, co-operative society, local authority, university, institution, association or body is entitled for such relief;

(iii) any loss under the head “Income from house property” for the same tax year;

(iv) any income chargeable under any other head of income, not being a loss under any such head other than the loss specified in sub-clause (iii) for the same tax year;

(v) any tax deducted or collected at source under this Chapter for the same tax year;

(b) the tax deductible from income under the head “Salaries” shall not be reduced in any case, except on account of—

(i) loss under the head “Income from house property”; and

(ii) the tax deducted and collected as per other provisions of this Chapter.

(5) The person responsible for paying any income chargeable under the head “Salaries” to the assessee—

(a) shall furnish a statement in such form and manner, as may be prescribed, with correct and complete particulars of perquisites or profits in lieu of salary paid, along with their value, to the assessee;

(b) shall, for the purposes of estimating income of the assessee or comput- ing 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 this Act in such form and manner, as may be prescribed; and

(c) may, increase or reduce the amount to be deducted under this section for adjusting any excess or deficiency arising out of any previous deduction or failure to deduct during the tax year. (6)(a) The trustees of a recognised provident fund, or any person authorised by the regulations of the fund to make payment of the accumulated balances due to employees shall, in cases where paragraph 9 of Part A of Schedule XI applies, at the time an accumulated balance due to an employee is paid, make therefrom the deduction provided in paragraph 10 of Part A of Schedule XI;

(b) where any contribution made by an employer, including interest on such con- tributions, 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 paragraph 7 of Part B of Schedule XI. (7)(a) Irrespective of anything contained in this Act, the trustees of the Employees’ Provident Funds Scheme, 1952, made under section 5 of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (19 of 1952); or

(b) any person authorised under such scheme to make payment of accumulated balance due to employees, shall at the time of payment of accumulated balance due to the employee partic- ipating in a recognised provident fund, deduct income-tax thereon at the rate of 10%, where the aggregate amount of such payment is ` 50000 or more, and such accumulated balance is includible in his total income owing to the provisions of paragraph 8 of Part A of Schedule XI not being applicable.

(8) For the purposes of deduction of tax on salary payable in foreign currency, the value in rupees of such salary shall be calculated at such rate of exchange as may be prescribed. Tax to be deducted at source.

Corresponding provision — 1961 regime

INCOME-TAX ACT, 2025	INCOME-TAX ACT, 1961
2025 provision	1961 counterpart
s. 392(1)-(2) -- Salary TDS at average rate	s. 192(1) (FA 1987 onwards)
s. 392(3) -- Employer to take into account other income & TDS	s. 192(2B) (FA 2002 from 1-6-2002)
s. 392(4) -- Multiple employers; particulars to chosen employer	s. 192(2) (FA 1987)
s. 392(5) -- Past employer adjustment (Form 12BAA)	s. 192(2A) (FA 2024 from 1-10-2024)
s. 392(6) -- Employer contribution to RPF/NPS/superannuation > INR 7.5 L	Explanation 1 to s. 17(2) (FA 2020 from 1-4-2021)
s. 392(7) -- Perquisite tax paid by employer (TDS in lieu)	s. 192(1A)/(1B) (FA 2002)
s. 392(8)-(10) -- Accumulated balance of RPF, TDS thereon	s. 192A (FA 2015 from 1-6-2015)

STATUTORY ARCHITECTURE & SCOPE

Section 392 is the salary TDS provision and is the most widely-applied TDS section in the Act. Every employer making a payment chargeable under the head "Salaries" is required to deduct income-tax at the average rate of income-tax computed on the basis of the rates in force for the financial year in which payment is made on the estimated income of the assessee under that head.

AVERAGE-RATE COMPUTATION (sub-sections (1)-(2))

Average rate is the rate of tax computed on estimated total salary income for the FY divided by such estimated income. The employer is bound to compute on a month-by-month basis but may align with actual payments. Rate = (Tax on estimated income for FY) / (Estimated income for FY). The default regime is the new regime under the s. 202 framework (analog to s. 115BAC); the employee may opt for the old regime by furnishing a declaration in Form 10-IEA-equivalent before 1st April or upon joining.

OTHER INCOME / TDS ADJUSTMENT (sub-section (3))

The employer is permitted (and is expected on a request from employee) to take into account income from other heads and TDS on such income, in computing the tax to be deducted from salary. Loss under the head "Income from house property" up to INR 2 lakhs is allowed (CBDT Circular No. 8/2013). The employee must furnish a declaration in writing with verification.

MULTIPLE EMPLOYERS (sub-section (4))

Where the assessee is employed simultaneously under more than one employer, or has changed employment in the FY, the assessee may furnish to the chosen employer details of salary received from the other employer(s) and tax deducted, so that the chosen employer can compute aggregated TDS. Form 12B is the prescribed format under the 1961 framework; the 2025 framework continues this mechanism.

PAST-EMPLOYER ADJUSTMENT (sub-section (5))

Sub-section (5) introduces the FA 2024 (effective 1-10-2024) mechanism whereby the new employer can give credit for TDS deducted by past employer. The employee furnishes Form 12BAA with details. This eliminates double TDS suffered earlier in mid-year job changes.

EMPLOYER CONTRIBUTIONS > INR 7.5 LAKHS (sub-section (6))

Aggregate of employer's contribution to (a) recognised provident fund, (b) approved superannuation fund and (c) NPS account exceeding INR 7.5 lakhs in a year is a perquisite under s. 17(2) [FA 2020]. The accretion (interest/dividend earned) on excess contribution is also taxable under Rule 3B mechanism. Section 392 builds this into TDS computation.

PERQUISITE TAX PAID BY EMPLOYER (sub-section (7))

Where employer chooses to pay tax on non-monetary perquisites at his cost, that tax is itself a perquisite-on-perquisite (analog to s. 192(1A)/(1B) of 1961). Sub-section (7) operationalises the mechanism: tax-on-tax computed on cost-to-employer perquisites is paid by employer and is not taxable in employee's hands.

RPF ACCUMULATED BALANCE TDS (sub-sections (8)-(10) / 1961 s. 192A)

On premature withdrawal from RPF (within 5 years of service) where the accumulated balance becomes taxable under Rule 8 of Part A of Fourth Schedule, the trustee/authorised person is required to deduct TDS at 10% if balance exceeds INR 50,000. PAN-less withdrawals attract maximum marginal rate.

FA AMENDMENT TIMELINE

FA 1987 -- s. 192 enacted in current form; average-rate principle established.
FA 2002 -- s. 192(1A)/(1B) introduced for tax-paid-by-employer mechanism.
FA 2002 (1-6-2002) -- s. 192(2B) introduced allowing other-income adjustment.
Circular No. 8/2013 -- house property loss adjustment recognised.
FA 2015 (1-6-2015) -- s. 192A introduced for RPF withdrawal.
FA 2020 (1-4-2021) -- INR 7.5 lakh employer-contribution-cap perquisite.
FA 2020 -- s. 115BAC default new regime (Personal Tax).
FA 2023 -- s. 115BAC default for individuals/HUFs/AOPs.
FA 2024 (1-10-2024) -- past-employer adjustment via Form 12BAA.

PRACTITIONER PLANNING NOTES

April-quarter declaration of regime: secure employee's option in writing (default new regime; old regime requires affirmative election); document the election to defend against subsequent dispute.
Form 12B (multiple-employer): obtain from new joiner; aggregate prior salary and TDS to compute true tax liability for remaining months.
Form 12BAA (FA 2024): the new employer can give credit for past employer's TDS -- this is critical for mid-year transitions; without it, employee suffers excess TDS and must wait for refund.
House property loss: cap at INR 2 lakhs (set-off rule); obtain rent receipts, interest certificate, and self-occupation / let-out declaration.
Other income disclosure: rent income, FD interest -- include in salary TDS computation only on employee request; otherwise the employee handles via advance tax / self-assessment.
LTC, HRA, leave encashment, gratuity: each has separate regime -- HRA needs landlord PAN if rent > INR 1 lakh p.a. (FA 2017); gratuity exempt up to INR 20 lakhs s. 10(10) [s. 11 of 2025].
Tax-on-non-monetary-perquisite mechanism (sub-section (7)): useful for executives where employer wishes to provide tax-protected perquisites; ensure tax-on-tax computed correctly at average rate.
Excess employer contribution > INR 7.5 lakh: monitor RPF + SAF + NPS aggregate; for high-CTC employees this readily triggers the perquisite -- adjust salary structure (e.g., shift to NPS Tier-1 with cap awareness).
Premature RPF withdrawal: counsel employee -- if withdrawal within 5 years, TDS @ 10% on accumulated balance > INR 50,000; can be avoided by transferring to new employer's RPF (no TDS).
PAN compliance: missing PAN triggers maximum-marginal-rate TDS under s. 393 / s. 206AA; insist on PAN at on-boarding.
Quarterly return Form 24Q: report salary breakup in Annexure II for Q4; reconcile with Form 16 issued by 15-Jun.
Form 16 issuance: TRACES-generated Part A + employer's Part B by 15-Jun (FY-end + 75 days); failure attracts s. 271H penalty (1961) / s. 446 (2025) of INR 100/day per default capped at TDS amount.

WORKED EXAMPLE -- AVERAGE RATE COMPUTATION FY 2026-27 (NEW REGIME DEFAULT)

Estimated salary FY 2026-27 = INR 12,00,000. Standard deduction (s. 19) = INR 75,000. Net taxable = INR 11,25,000. Tax (s. 202 new regime FY 26-27 slabs assumed): 0 up to 4L; 5% on next 4L = 20,000; 10% on next 4L = 30,000 (truncated to 1.25L * 10% = 12,500). Total tax (illustrative) = INR 32,500. Add 4% cess = INR 1,300. Total = INR 33,800. Average rate = 33,800 / 11,25,000 = 3.005%. Monthly TDS = 33,800 / 12 = INR 2,817 (rounded).

CASE-LAW DIGEST

CIT v. Larsen & Toubro Ltd. (2009) 313 ITR 1 (SC) -- employer's bona fide estimate of perquisite is not 'short-deduction'.
Eli Lilly & Co. (India) (2009) 312 ITR 225 (SC) -- expatriate salary; offshore portion taxable in India where services rendered in India.
Hindustan Coca-Cola Beverages (P) Ltd. v. CIT (2007) 293 ITR 226 (SC) -- deductor not in default if deductee has paid tax.
Yashpal Sahni v. Rekha Hajarnavis (2007) 165 Taxman 144 (Bom) -- TDS deducted but not paid; employer cannot recover from employee; employee's tax liability stands discharged.
Kanchanganga Sea Foods Ltd. v. CIT (2010) 325 ITR 540 (SC) -- TDS on payments made outside India; territorial scope.
Bharti Cellular Ltd. (2010) 193 Taxman 97 (SC) -- 'human element' relevance for technical services TDS.
CIT v. ITC Ltd. (2016) 384 ITR 14 (SC) -- tip distribution by employer not 'salary' for TDS.

CROSS-REFERENCES

s. 17 (1961) / s. 18 (2025) -- Salary head computation.
s. 19 (2025) -- Standard deduction (INR 50,000 / 75,000 new regime).
s. 115BAC (1961) / s. 202 (2025) -- new tax regime default.
s. 391 -- direct payment by assessee (residual).
s. 397 -- TDS quarterly return (Form 24Q).
s. 398 -- consequences of failure to deduct.
s. 446 / s. 447 (2025 penalty Chapter) -- TDS-related penalties.
Rule 3 (Perquisites valuation), Rule 26C (HRA), Rule 26A (multiple employers).

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