Summary : For Tax Year 2026-27, salary withholding is governed by section 392 of the Income-tax Act, 2025 and the Income-tax Rules, 2026. An employer deducts tax at the average rate computed on the employee’s estimated salary income for the tax year. That estimate is not frozen when the first payroll is processed. It must be updated for salary revisions, bonuses, joins and exits, eligible employee disclosures, claim evidence, tax already withheld and changes in the remaining pay periods. Form 122 enables an employee to disclose salary from another employer, house-property loss, other income and TDS or TCS details; the official form guidance says it should be furnished at the earliest and not later than 31 March. Form 124 is the prescribed statement and evidence for specified salary claims, including house-rent allowance, leave travel concession, home-loan interest and Chapter VIII deductions. Section 392(5)(c) permits the employer to increase or reduce later deductions to correct an excess or deficiency arising during the tax year. A November true-up therefore links declarations, proof, the year-to-date payroll ledger and the number of salary payments remaining. It does not convert the employer into the employee’s return preparer or allow unsupported deductions merely because they appeared in an early declaration.
- Section 392 Makes Salary TDS a Rolling Annual Estimate
- Form 122 Brings Other Salary and Limited Outside Items Into Payroll
- Earlier or concurrent employer salary
- House-property loss, other income and TDS or TCS
- Form 124 Evidence Controls the Claims Allowed by the Employer
- House-rent allowance and landlord particulars
- LTC, home-loan interest and Chapter VIII deductions
- A November-to-March Catch-Up Model
- Payroll File and Review Controls
- Frequently Asked Questions
- Is a January investment declaration enough for the final payroll deduction?
- What is Form 122 used for?
- Can an employee submit Form 122 after changing jobs?
- Can payroll consider every loss disclosed by an employee?
- What happens when proof is lower than the amount declared?
- Can an employer correct too little or too much salary TDS?
- Does payroll TDS settle the employee’s final tax?
- Key Takeaways
Section 392 Makes Salary TDS a Rolling Annual Estimate
Section 392 requires a person responsible for paying salary to deduct tax at the time of payment at the average rate computed on the estimated salary income of the employee for the tax year. The working unit is therefore the expected annual salary and tax, even though deduction occurs through monthly payroll. A correct control starts with taxable salary expected from the employer, applies the law and regime relevant to the tax year, gives effect only to information the employer may lawfully consider, deducts year-to-date TDS and spreads the balance over the remaining salary payments.
The estimate must respond to events. A retrospective increment, variable pay, joining bonus, notice pay, unpaid leave, mid-year transfer, perquisite valuation or exit settlement can alter projected income. So can information furnished under Form 122 or acceptable proof under Form 124. Section 392(5)(c) expressly allows a subsequent deduction to be increased or reduced to adjust an excess or deficiency arising from an earlier deduction during the same tax year. That adjustment power supports a documented true-up; it is not authority to postpone known tax until the final payroll.
| True-up input | Payroll treatment | Evidence |
|---|---|---|
| Revised salary, bonus or perquisite | Reforecast taxable salary and remaining TDS | Approved compensation letter and payroll calculation |
| Earlier-employer salary | Include disclosed salary and related TDS through Form 122 | Completed Form 122, Form 16 or payroll statement |
| Other income or house-property loss | Use only within section 392 and Form 122 limits | Employee disclosure and supporting computation |
| HRA, LTC, home-loan interest or Chapter VIII claim | Allow only after prescribed Form 124 particulars and evidence | Form 124 and claim-specific documents |
| Year-to-date excess or shortfall | Adjust across remaining salary payments under section 392(5)(c) | TDS ledger, approval and employee communication |
Form 122 Brings Other Salary and Limited Outside Items Into Payroll
Earlier or concurrent employer salary
Form 122 is the employee statement for salary received from another employer and specified additional information. Where an employee changes jobs or has more than one employer, the chosen employer cannot reliably estimate annual salary tax without the disclosed gross salary, exemptions or deductions relevant to that salary and tax already deducted. Payroll should not merely import the net amount visible in a bank statement. It should retain the signed or authenticated form and reconcile the tax-credit figure to reliable supporting material.
House-property loss, other income and TDS or TCS
Section 392(4) permits the employee to furnish particulars of other income, loss under the head income from house property and tax deducted or collected. The employer may take the information into account, but the resulting salary deduction cannot be reduced because of an outside loss other than the permitted house-property loss or because of a claim outside the statutory mechanism. Positive other income can increase the payroll estimate. The employer should not adjudicate complex business losses, capital gains or disputed tax credits through salary payroll.
The department’s official Form 122 guidance says the form should be furnished at the earliest possible time and not later than 31 March of the tax year. Waiting until March leaves little room for a shortfall to be recovered without a sharp deduction from the last salary. A practical internal cut-off may be earlier, provided employees are told that the statutory form and final payroll feasibility are separate issues and that late information may have to be dealt with in the return.
Form 124 Evidence Controls the Claims Allowed by the Employer
Section 392(5)(b) requires the employer to obtain prescribed evidence, proof or particulars for specified claims. Rule 205 and Form 124 operationalise that requirement. The form covers house-rent allowance, leave travel concession, interest on borrowing for house property and deductions under Chapter VIII. A declaration at the start of the year is a planning input; it is not proof that the expense or investment occurred. If evidence is not furnished or does not support the declared amount, the payroll estimate must be corrected.
House-rent allowance and landlord particulars
For HRA, Form 124 calls for the landlord’s name and address, the landlord’s PAN where annual rent exceeds ₹1,00,000, and the employee’s relationship with the landlord, in addition to supporting evidence. Payroll should reconcile the rental period to employment and occupancy, identify duplicate or overlapping claims and retain a reasoned exception record where normal evidence is unavailable. The employer should not treat a rent transfer alone as conclusive proof of every condition for the exemption.
LTC, home-loan interest and Chapter VIII deductions
Leave travel concession requires evidence of eligible travel and the persons covered. Home-loan interest evidence should identify the lender, its address and PAN, and connect the certificate to the property and borrower. Chapter VIII claims require the investment or expenditure evidence prescribed for the relevant deduction. Payroll reviewers should use claim-specific tests rather than a single generic proof checklist, because payment timing, eligible person, ownership, limits and other statutory conditions differ.
A November-to-March Catch-Up Model
The true-up calculation should start with projected taxable salary after considering verified claims, then apply the applicable section 202 slab and other relevant provisions for Tax Year 2026-27. Under the default regime, the published slabs are nil up to ₹4,00,000, 5% from ₹4,00,001 to ₹8,00,000, 10% from ₹8,00,001 to ₹12,00,000, 15% from ₹12,00,001 to ₹16,00,000, 20% from ₹16,00,001 to ₹20,00,000, 25% from ₹20,00,001 to ₹24,00,000 and 30% above ₹24,00,000. Rebate, surcharge, cess, marginal relief and the employee’s valid regime position must be applied separately where relevant; a slab table alone is not a complete computation.
After computing projected annual tax, deduct eligible TDS or TCS considered under the statutory mechanism and salary TDS already deducted. Divide the balance over the actual salary payments remaining, not merely the calendar months remaining. If a shortfall is too large to recover within net-pay constraints, escalate promptly, communicate the basis to the employee and document the treatment. If the recalculation shows excess deduction, section 392(5)(c) permits a reduction in later deductions during the same tax year, but the adjustment should not create a negative cash deduction or an undocumented refund outside payroll controls.
| Review date | Control objective | Output |
|---|---|---|
| November 2026 | Refresh annual salary, collect Forms 122 and 124, identify gaps | Employee-wise variance and evidence tracker |
| December 2026–January 2027 | Validate proof and reforecast bonus or perquisites | Approved annual tax estimate and exception list |
| February 2027 | Resolve rejected claims and material shortfalls | Catch-up schedule and employee communication |
| March 2027 | Process final permitted information and reconcile deductions | Final payroll tax ledger and year-end sign-off |
Payroll File and Review Controls
Freeze a dated employee-wise projection before each material true-up and retain the calculation inputs.
Separate declarations received from evidence accepted; do not overwrite the original submission.
Reconcile Form 122 salary and TDS to supporting statements and the employee identifier.
Record each Form 124 claim as accepted, partly accepted, rejected or pending with a reason.
Test the remaining deduction against actual pay periods, net-pay constraints and section 392(5)(c).
Reconcile the final salary ledger, withholding returns, employee certificate and tax-credit records.
Frequently Asked Questions
Is a January investment declaration enough for the final payroll deduction?
No. A declaration supports an estimate, while section 392(5)(b), Rule 205 and Form 124 require the prescribed particulars and evidence for specified claims.
What is Form 122 used for?
It is used to disclose salary from another employer, permitted house-property loss, other income and TDS or TCS particulars so the employer can make the section 392 estimate.
Can an employee submit Form 122 after changing jobs?
Yes. Official guidance says it should be furnished at the earliest possible time and not later than 31 March, although an early submission improves payroll recovery.
Can payroll consider every loss disclosed by an employee?
No. The statutory mechanism restricts reduction of salary TDS; a house-property loss and eligible TDS or TCS can be considered within the provision, but other losses do not automatically reduce payroll withholding.
What happens when proof is lower than the amount declared?
The projected deduction should be recomputed using the amount supported under the applicable law, and any shortfall should be adjusted through remaining payroll where feasible.
Can an employer correct too little or too much salary TDS?
Section 392(5)(c) allows later deductions during the tax year to be increased or reduced to adjust a deficiency or excess arising from earlier deductions.
Does payroll TDS settle the employee’s final tax?
No. Salary TDS is withholding based on an estimate. The employee remains responsible for the return, complete income disclosure and final tax liability.
Key Takeaways
Salary TDS for Tax Year 2026-27 is a rolling annual estimate under section 392.
Form 122 captures other-employer salary and specified outside income, loss and tax-credit information.
Form 124 converts selected declarations into evidence-tested payroll claims.
Section 392(5)(c) supports documented catch-up or downward adjustment within the tax year.
A November true-up preserves more pay periods for correction and clearer employee communication.
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Disclaimer: This article is a general educational discussion of salary tax deduction under section 392 of the Income-tax Act, 2025, section 202, Rule 205 and Forms 122 and 124 of the Income-tax Rules, 2026, checked on 14 November 2026. It is not payroll, tax, legal, employment or accounting advice and does not determine the taxable salary, permitted exemption, deduction, regime, rebate, surcharge, cess, marginal relief, house-property result, other income, tax credit or final liability of any employee. The employer’s estimate depends on actual salary terms, perquisites, bonus, joining and exit dates, residence, age, regime choice, disclosures, acceptable evidence, prior deductions and the law applying to the specific payment. A declaration is not proof, a document is not automatically sufficient, and the employer should not use payroll to adjudicate claims outside the statutory mechanism. Forms, validation rules, portal functionality and official guidance may change. Employers should verify the current Act, Rules, forms, payroll-return requirements and departmental instructions before processing, preserve the original information and review material exceptions with qualified tax, payroll, legal and accounting professionals. Employees remain responsible for complete return reporting and final tax, even where an employer considered Form 122 or Form 124. TaxGuru accepts no responsibility or liability for any short deduction, excess deduction, interest, penalty, rejected claim, incorrect regime, tax-credit mismatch, net-pay impact, employee dispute, return error or other loss arising from reliance on this article, incomplete facts, altered documents, processing delays, software logic or subsequent legal, administrative or system changes.
