Income from Salary under New Income tax Act, 2025 – A Practical Note from 01.04.2026
From 1 April 2026, the Income‑tax Act, 2025 becomes the main law for income tax. Salary continues to be one of the most important heads of income. For a large number of Indian families, salary is still the main source of income, so it is necessary to understand how the new Act deals with it.
1. Salary – same concept, new section numbers
The new Act keeps the old idea intact: salary is what an employee receives from an employer, in money or in kind, because of the employment. It includes monthly pay, allowances, bonus and many non‑cash benefits (perquisites).
Broadly, the sections are:
Section 15 – Salaries (charging section, when salary is taxed)
Section 16 – Income from salary (what all is included)
Section 17 – Perquisites (non‑cash benefits from employer)
Section 18 – Profits in lieu of salary
Section 19 – Deductions from salary (standard deduction, professional tax, etc.)
These are the new‑Act counterparts of old sections 15 to 17 and the salary part of section 16 in the 1961 Act.
2. What all is covered under “salary”
Section 16 of the 2025 Act gives an inclusive definition of salary. In simple words, it covers:
Basic salary and wages
Dearness allowance (DA)
Bonus, ex‑gratia, incentives and commission
Pension and annuity (taxable portion)
Gratuity above the exempt limit
Leave encashment, subject to limits
“Profits in lieu of salary” – compensation on termination, VRS excess, etc.
Taxable portion of recognised PF accretion and transferred balances
Employer’s contribution in excess of limits to PF/superannuation funds
Perquisites – rent‑free accommodation, car, free meals, children’s education, employer‑paid insurance, interest‑free loans, etc.
So, when a salaried person calculates income from salary, all these items come into the picture unless the Act or the Rules give a specific exemption.
3. A basic salary example under the new law
Example 1 – Normal package with perquisite
For Tax Period 2026‑27, suppose Mr. Arjun (resident employee) gets:
Basic salary: ₹50,000 per month → ₹6,00,000
House Rent Allowance (HRA): ₹20,000 per month → ₹2,40,000
Special allowance: ₹15,000 per month → ₹1,80,000
Employer’s recognised PF contribution: ₹60,000 (within overall limits)
Company car used for official + personal purpose: taxable perquisite value as per new Rules = ₹30,000 for the year.
His gross salary (before exemptions/deductions) will be:
6,00,000 + 2,40,000 + 1,80,000 + 60,000 + 30,000 = ₹11,10,000
From this figure, he will get:
Standard deduction (for illustration, ₹75,000 as per the new regime)
Deduction for professional tax, if any
Deductions under the new Chapter VIII (replacement of old Chapter VI‑A) for PF, life insurance, ELSS, health insurance, etc.
The logic is exactly what practitioners know: build gross salary, then subtract standard deduction and eligible deductions to reach taxable income.
4. Perquisites – core ideas from 1‑4‑2026
Perquisites are getting more attention now, because the new Act and the Income‑tax Rules, 2026 try to clean up the valuation rules. The concepts are still familiar.
Common perquisites include:
Rent‑free or concessional accommodation
Use of car and driver
Free or subsidised meals and vouchers
Free or subsidised education for children
Employer‑paid medical benefits and health insurance
Interest‑free or concessional loans
ESOPs / sweat equity in certain case.
The new Rules (successors to old Rule 3) give revised perquisite tables and higher thresholds in some cases, especially for lower and middle‑income employees.
Example 2 – Employer‑paid health insurance
Ms. Bhavana works in an IT company. Her employer pays ₹18,000 per year as group health insurance premium for her, her spouse and two children.
Under the new perquisite rules (from April 2026), employer‑paid health insurance within the notified limits continues to be treated as a tax‑free perquisite, so this ₹18,000 is not added to her taxable salary.
However, if the employer pays her personal club membership fee that is not covered by any exemption, that amount will be added as a taxable perquisite.
5. Deductions from salary – standard deduction and beyond
The new Act keeps the salary‑head deductions short and shifts general deductions into a re‑organised Chapter VIII.
Under the salary and deduction sections, the main items are:
Standard deduction: a flat amount (for example, ₹75,000) for all salaried taxpayers and pensioners.
Professional tax: tax on employment paid to a State can be deducted if borne by the employee.
Relief for arrears: an updated relief provision (successor of section 89) allows an employee to claim relief when large arrears push them into a higher slab. A new e‑form (successor of Form 10E) will be used.
Deductions like:
PF contribution, PPF, NSC, ELSS
Life insurance premium
NPS and similar schemes
Health insurance premiums (old 80D‑type)
are now covered by new sections in Chapter VIII (for example, section 123 for savings, section 126 for health insurance), but the principle remains the same: certain payments are deducted from gross total income up to specified limits.
Example 3 – Salary with savings and health insurance
Mr. Chandan (resident) in Tax Period 2026‑27 has:
Gross salary (including perquisites): ₹15,00,000
Own contribution to eligible savings (new section 123 type): ₹1,50,000
Health insurance premium for self and family (new section 126 type): ₹35,000
Computation (simplified):
Gross salary: ₹15,00,000
Less standard deduction: ₹75,000 → ₹14,25,000
Gross total income: ₹14,25,000
Less savings deduction (s.123): ₹1,50,000
Less health insurance deduction (s.126): ₹35,000
Taxable income ≈ ₹12,40,000. Tax is then worked out at the new slabs (0–4 lakh nil, 4–8 lakh 5%, 8–12 lakh 10%, 12–16 lakh 15%, and so on), after rebate where applicable.
6. New TDS rules and forms for salary
From 1 April 2026, TDS on salary is no longer under old section 192 and old Forms 16/24Q. The new law and rules make three visible changes:
New salary‑TDS section
TDS on salary now falls under the TDS chapter of the 2025 Act (for example, a new “salary TDS” section mapped from old 192).
Method remains the same: employer estimates annual income, adjusts for standard deduction and declared deductions, applies new slabs, and spreads TDS over the months.
Form 130 – new TDS certificate for salary
Form 130 replaces Form 16 from 1‑4‑2026.
It is the annual TDS certificate for salary (and in some cases, interest for specified senior citizens).
It has three parts: A (details), B (summary), and C with Annexures I & II (detailed computation and perquisite break‑up).
Form 138 – new quarterly TDS statement
The old Form 24Q is now replaced by Form 138 for quarterly salary TDS reporting under the new Rules.
Data from Form 138 will pre‑fill salary details and TDS in the employee’s ITR forms.
For day‑to‑day practice, whenever an older article or order mentions “TDS under section 192, Form 16 and Form 24Q”, the equivalents from 1‑4‑2026 are “salary‑TDS section under the 2025 Act, Form 130 and Form 138”.
7. A few recurring salary issues under the new Act
Even with a cleaner law, some old issues will continue and need attention:
(a) Job changes in the middle of the year
If an employee changes employers during 2026‑27, TDS must be based on total salary from all employers. The new employee‑declaration form (successor to Form 12BB) will have a space for previous employer’s salary and TDS. If this is not given, the new employer may under‑ or over‑deduct tax.
(b) Arrears and relief
Arrears of salary received in 2026‑27 are taxed in that period. The new relief section (successor to section 89) allows an employee to calculate tax “then vs now” and claim the difference as relief, using the notified online form.
(c) Reimbursement vs allowance
The basic distinction remains:
Reimbursement of actual official expenses against proper bills is normally not income.
Flat allowances without bills (conveyance allowance, miscellaneous allowance, etc.) are taxable.
The new Act mainly simplifies the wording; the principle is the same.
(d) Small perquisites for lower‑income employees
There is a clear policy move to make small perquisites more tax‑friendly for employees up to a certain income level (for example, around ₹8 lakh). Canteen meals up to revised limits, small gifts, and modest education concessions for children are given more generous thresholds in the new Rules.taxguru+1
8. Why salary head remains central
Under the new Income‑tax Act, 2025, salary income is still the most visible and most regularly taxed head. TDS on salary is the first real test for the new sections, new forms and new perquisite rules. For practitioners, the main work in 2026‑27 will be:
Mapping old sections (15, 17, 80C, 80D, 192, etc.) to Sections 15–19 and Chapter VIII of the new Act.taxguru+1
Checking employer salary structures and perquisite valuation under the Income‑tax Rules, 2026.taxguru+2
Ensuring payroll systems are updated for Form 130, Form 138, and the new salary‑TDS section from 1‑4‑2026.instagram+2
If these basics are kept in mind, “salary under the new Act” will not feel like a brand‑new subject every April. It will be the same familiar structure, written in cleaner language, with somewhat better relief for honest middle‑class employees.
Suggested footnotes:
Income from Salaries under New Income‑tax Act 2025 – Sections 15 to 19
Income Tax Act 2025 vs Income Tax Act 1961 – Key Section Changes
New Income‑tax Act, 2025 – A Complete Guide for Common Taxpayers
Form 130: New TDS Certificate for Salary (Replacing Form 16)
Form 130 – Frequently Asked Questions
Income from Salaries Under New Income Tax Act 2025 – detailed treatment of sections 15–19
Author Bio
if it can be simplified saying – salary and component and then two table showing what deductions allowed and how much and to arrive at taxable salary