TDS on Salary FY 2026–27 — Complete Guide
TDS (Tax Deducted at Source) on salary under Section 192 of the Income Tax Act is the primary mechanism through which the Indian government collects income tax from salaried employees. Your employer deducts TDS from your salary every month based on an estimate of your annual tax liability, and deposits it with the government on your behalf. At year-end, this appears in your Form 26AS and is reconciled when you file your ITR.
Budget 2025 Key Changes for FY 2026–27
- Revised New Regime Slabs: The Union Budget 2025 restructured the New Regime tax slabs significantly. Income up to ₹4L is now tax-free (previously ₹3L). New slabs: 5% on ₹4–8L, 10% on ₹8–12L, 15% on ₹12–16L, 20% on ₹16–20L, 25% on ₹20–24L, 30% above ₹24L.
- Section 87A Rebate Enhanced: Tax rebate under 87A increased to ₹60,000 for New Regime taxpayers (from ₹25,000), effectively making income up to ₹12L tax-free.
- Standard Deduction Retained at ₹75,000: The ₹75,000 standard deduction introduced in Budget 2024 continues for New Regime salaried employees (₹50,000 under Old Regime).
- New Regime Remains Default: Employees who do not declare a regime preference to their employer will have TDS computed under the New Regime by default.
Frequently Asked Questions
What is TDS on salary for FY 2026–27?
TDS (Tax Deducted at Source) on salary for FY 2026–27 is calculated under Section 192 of the Income Tax Act. Your employer deducts the estimated annual tax from your salary every month. The exact amount depends on your gross salary, chosen tax regime (old or new), and eligible deductions under chapters VI-A.
What is the difference between Old Regime and New Regime for TDS?
Under the Old Tax Regime, you can claim deductions like HRA, 80C (₹1.5L), 80D (health insurance), LTA, and standard deduction of ₹50,000, which significantly reduces taxable income. The New Tax Regime has lower slab rates but does not allow most deductions (except standard deduction of ₹75,000 from FY 2025–26). The New Regime is now the default regime.
What is the new tax slab for FY 2026–27 under the New Regime?
New Regime slabs for FY 2026–27: ₹0–4L = Nil; ₹4L–8L = 5%; ₹8L–12L = 10%; ₹12L–16L = 15%; ₹16L–20L = 20%; ₹20L–24L = 25%; Above ₹24L = 30%. Income up to ₹12L is effectively tax-free due to rebate under Section 87A.
How is monthly TDS on salary calculated?
Monthly TDS = Annual Tax Liability ÷ 12. The employer estimates your total annual income and deductions at the start of the year, computes the full-year tax, then divides by 12 months. Any shortfall in the final quarter is adjusted in the last few months of the financial year.
What is Form 12BB and who needs to submit it?
Form 12BB is a statement of claims for deductions and exemptions submitted by an employee to their employer at the start of the financial year. It covers HRA, LTA, home loan interest (Section 24b), and Chapter VI-A deductions (80C, 80D, etc.). Employers use this to compute accurate TDS. Employees who want to claim deductions under the Old Regime must submit Form 12BB.
Is income up to ₹12 lakh really tax free in FY 2026–27?
Yes, under the New Tax Regime, income up to ₹12 lakh is effectively tax-free due to the rebate under Section 87A (up to ₹60,000 tax rebate). However, if income exceeds ₹12 lakh, the entire income becomes taxable at the applicable slab rates — there is no partial benefit. Salaried individuals also get a ₹75,000 standard deduction, making the effective exemption limit ₹12.75 lakh.
What is surcharge on income tax for FY 2026–27?
Surcharge applies when total income exceeds ₹50 lakh. Rates: 10% surcharge on tax if income is ₹50L–₹1Cr; 15% if ₹1Cr–₹2Cr; 25% if ₹2Cr–₹5Cr; 37% if above ₹5Cr (37% surcharge has been capped at 25% under New Regime). Health & Education Cess of 4% applies on tax + surcharge for all taxpayers.
Can I switch between Old and New Tax Regime?
Salaried employees can switch between regimes every year at the time of filing ITR. However, you must inform your employer of your choice at the start of the year (or by July of the current financial year) so they can deduct TDS accordingly. If you have business income, the rules for switching are stricter.
What deductions are allowed under Section 80C for FY 2026–27?
Section 80C allows deductions up to ₹1,50,000 per year for investments in EPF/PPF, ELSS mutual funds, life insurance premiums, NSC, 5-year tax-saving FD, home loan principal repayment, children's tuition fees, and Sukanya Samriddhi Yojana. Section 80CCD(1B) allows an additional ₹50,000 for NPS contributions.
How do I claim HRA exemption under the Old Regime?
HRA exemption is the least of: (a) actual HRA received, (b) 50% of basic salary for metro cities or 40% for non-metro cities, (c) actual rent paid minus 10% of basic salary. You must submit rent receipts and the landlord's PAN (if annual rent exceeds ₹1 lakh) via Form 12BB to your employer.