TDS on Salary under New Income Tax Act 2025

The Income Tax Act, 2025 retains most provisions of Sections 192 and 192A, now consolidated under Section 392 governing tax deduction at source (TDS) on salaries. Employers are required to deduct tax based on the average rate of income tax applicable to an employee’s total income, including perquisites, after considering declarations and proofs for eligible deductions. These include loss under “Income from House Property,” relief under Section 157 (similar to old Section 87A), and TDS already deducted by others. Employers must also consider other income declared by employees and adjust deductions accordingly. In cases of withdrawal from a recognised provident fund before five years of continuous service, trustees must deduct tax under Section 392(6)(a), while withdrawals above ₹50,000 from funds under the Employees’ Provident Fund Scheme, 1952, attract a 10% TDS if taxable. Contributions from superannuation funds paid under non-specified conditions are taxable at the employee’s average tax rate of the previous three years. Employers are responsible for collecting proofs of claims, reporting perquisites, and remitting deducted tax to the government as prescribed. For employees working abroad, salary earned and received outside India remains non-taxable if the individual qualifies as a non-resident by staying abroad for over 182 days, as reaffirmed in several ITAT rulings. The related rules under the new Act are yet to be notified. Readers are advised to verify corresponding provisions under both the Income Tax Acts of 1961 and 2025 before compliance.

TDS ON SALARY: SECTION 392 

• Almost same provisions of old section 192 and 192A are retained in the New Act.

• Average rate of Income Tax on the Total Income of the Employees to be arrived at by the Employer for the purpose of deduction of tax at source from the Salary Income, including non-monetary perquisites.

• The Employer, on the declaration*, if any made by the Employee, can deduct TDS by including the salary due or received from the other employer(s) or any income chargeable under other heads.

• While deducting the TDS, the following deductions / reliefs can be considered by the Employer based in declaration* / proof submitted by the Employees:

1. 1. Loss under the head ‘Income from House Property’
   2. Relief under Sec 157 (similar to Sec 87A of Old Act)
   3. TDS already deducted for the employees by other persons for the same Tax Year
   4. prescribed claims (including claim for set off of loss) under the provisions of this Act

* declarations will be in such form and manner as may be prescribed under the Rules. Rules are yet to be notified under Income Tax Rules as on 02.10.2025.

TDS on Payment of Employees’ Provident Fund under Recognised Provident Fund Scheme

• In some cases, the withdrawal of accumulated balance (that portion of employees’ contribution) by the Employees of Recognised Provident Fund Scheme is taxable, for an instance, if the employee has not rendered continuous service with his employer for five years. In such cases, the trustees of a recognised provident fund is required to deduct tax under section 392 (6)(a).

Note: This is not applicable to any provident fund to which the Provident Funds Act, 1925 applies.

TDS on payment of Superannuation Fund:

• When any contributions made by an employer to an approved superannuation fund, including interest are paid to an employee during his lifetime under conditions other than those specified in Schedule II (Table: Sl. No. 8), tax on the amounts so paid shall be deducted at the average rate of tax applicable to the employee—

• • during the previous three years; or
  • during the period for which the employee was a member of the fund, if the period is less than three years.

TDS on payment of Employees’ Provident Fund covered under Employees’ Provident Funds Scheme, 1952:

• At the time of payment of accumulated balance due to the employee participating in a recognised provident fund, income-tax should be deducted at the rate of 10%, where the aggregate amount of such payment is ₹50000or 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 (like if the employee has not rendered continuous service with his employer for five years).

IMPORTANT POINTS – 

FOR EMPLOYEES 

• Please submit 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, when asked by the Employer.

• Please give the details of Tax Scheme (such as New Tax Regime) clearly while giving the above particulars.

• If you are working / has worked under more than one Employer(s) and / or if you have any other income chargeable to income tax, you may give a declaration to your Employer about such income with a request to deduct more TDS under Salary, after considering that additional income also. This will reduce the burden to pay advance tax, if applicable and avoid interest payments, if advance tax is not paid as stipulated under the Act. You cannot declare losses (except loss under house property) under this facility.

• You may also declare TDS already deducted by other Employers or other persons (for example Banks, for your interest on FDs) to the employer to consider while deducting the TDS on salary / other income declared.

For Employers

• Estimate the Total Income and Total Tax payable by the Employees, ( and compute the average rate of tax) after considering the declarations submitted by the Employees and deduct the tax at average rate, whenever the salary accrues or payment is made, including the perquisites.

• Employer need to get particulars / proofs from Employees regarding claims, losses, if any under house property from the employees concerned for the purpose of computing the estimated income and average tax rate.

• If any non-monetary perquisites are considered for the purpose of TDS, the employer 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 employees.

• If any bonus / incentives / one-time payments / any other payments are paid, which are not considered at the time of estimation of total income / tax, then the employer increase or reduce TDS for adjusting any excess or deficiency arising out of any previous deduction.

• Please note that losses of capital gains / business or profession / other sources cannot be considered for set-off. Only losses under house property can be adjusted with Salary Income for the purpose of TDS.

• 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.

• As per Sec 397(3)(a), Employer referred to in section 392(2)(a) shall pay the amount so deducted to the credit of the Central Government, in such time as may be prescribed*.

• As per Sec 397(3)(b), Employer referred to in section 392(2)(a), after paying the tax to the credit of the Central Government as per clause (a), shall deliver or cause to be delivered to the prescribed income-tax authority or the person authorised by such authority, a statement for such period, in such form, verified in such manner, giving such  particulars, and within such time, as may be prescribed*.

* Rules are yet to be notified as on 02.10.2025.

Taxability of Foreign Salary:

1. Where assessee was outside India for a period of more than 182 days, he had become a non-resident and, therefore, salary income received by assessee outside India from a foreign employer for services rendered outside India could not be brought to tax in India. Case Law: Ashish Bhardwa v. Income-tax Officer, Ward-36(4), New Delhi ([2021] 130 taxmann.com 197 (Delhi – Trib.) / [2021] 190 ITD 867).

2. Please also refer: Avdesh Kumar v. Dy. CIT [2018] 96 taxmann.com 340/172 ITD 73 (Delhi – Trib.). In that case, the AO, during the course of assessment proceedings had observed from the bank extract furnished by the assessee that it had received salary outside India (Korea) which had not been declared in the return of income and the assessee had also not claimed any relief u/s 90. The amount of such salary in Korean currency was converted into Indian currency. Keeping in view of 26AS wherein it was found that employer had deducted TDS on the entire income i.e., salary received in India as well as in Korea, the AO added back the salary income earned in Korea as income of the assessee. The ld.CIT(A) upheld the order of the AO. On further appeal by the assessee, the Tribunal set aside the order of the CIT(A) and directed the AO to delete the addition by observing as under:—

“9. I have considered the rival arguments made by both the sides and perused the material available on record. I find on the basis of the Form 26AS the Assessing Officer made addition of Rs. 17,09,702/- which is the income earned by the assessee from his foreign employer received outside India on the ground that tax has been deducted by the employer from such salary income and assessee has not disclosed the same in his salary income. It is the submission of the Ld. Counsel for the assessee that since the assessee was outside India for a period of more than 182 days, (247 days to be precise), therefore, he has become a non-resident and therefore, is not liable to tax on such income received from his foreign employer which was received outside India. I find some force in the above argument for the Ld. Counsel for the assessee. It has been held in various decisions that when a citizen of India leaves India for employment abroad and stayed outside India for 182 days or more, then he becomes a non-resident and the income received from services rendered outside India cannot accrue or arise or deemed to accrue or arise in India and cannot be taxed in India notwithstanding the fact that the same is credited in the bank in India or TDS has been deducted on such income.

10. I find the Delhi Bench of the Tribunal in the case of Pramod Kumar Sapra (supra) has held that where the stay of the assessee, an employee of RIL, and deputed to Iraq outside India was for more than threshold 182 days, salary income of assessee for the previous year could not be held to be taxable because he was not resident of India. The Delhi Bench of the Tribunal in the case of Addl. CIT v. Rajiv Bali (supra) under identical circumstances, following various decisions has held that remuneration received by the assessee in respect of the foreign employment is not taxable in India under provision of section 5 (2) (a) of the IT Act, 1961 and such income cannot be taxed in India when the assessee stayed outside India for more than 182 days. The relevant observations of the Tribunal from para 4 onwards read as under :—

“4. The only issue involved is against the deletion of addition of Rs. 22,29,385/- made by the Assessing Officer by holding that the remunerations received by the assessee in respect of the employment in Russia and Tanzania are not taxable in India under the provisions of section 5(2)(a) of the Income-tax Act, 1961.

5. We have heard both the sides on this issue. After hearing, we find that during the relevant period, the assessee has stayed in India for 135 days. As per the provisions of section 6(1 )(a) and (c) read with Explanation (a) to section 6(1), the period of stay of an individual should be 180 days for being a resident in India. Thus, the status of the assessee was a nonresident. In view of this fact, the income can be taxed only with the provisions of section 5(2)(a) of the Income-tax Act, 1961. The assessee has rendered services outside India and the income has accrued outside India. The only issue is that whether the amount credited in the NRI account of the assessee located in India as per his instructions to the employer can be taxed as per provisions of section 5(1 )(a) and (b) of the Income-tax Act, 1961 with regard to scope of income. We have considered all the facts of the case and we find that this issue is covered in favour of the assessee by the decision of Hon’ble ITAT in the case of Ranjit Kumar Bose v. ITO reported in 18 ITD 230 (ITAT – Calcutta) where it is held as under :—

“14. True, in this case, salary income accrued outside India, but was received in India in the same accounting year. It is clear that salary income could not have been brought to tax on accrual basis for the simple reason that it accrued outside India. The provisions of section 5(2)(a) are subject to section 15 which, inter alia, says that salary is chargeable to income-tax on due basis irrespective of the fact whether it has been received or not. So, salary income is not liable to be taxed in India on recent basis under section 15. We are, therefore, clearly of the view that the salary received in India in this case was not chargeable to income-tax under the head ‘Salaries’ under section 15(a). As has also been pointed out above, this case does not fall either under clause (b) or clause (c) of section 15.”

ITAT, Delhi has also decided in the case of ADIT v. Nandan Singh Chauhan reported in 2011 -TII-27-ITAT-DEL-NRI as under :—

“We have carefully considered the submissions and perused the record We find is undisputed that the assessee is NRI and he has received income from foreign company for the services rendered outside India. Just merely because he has instructed the salary to be transferred to his FCNR a/c maintained with HSBC bank, Barakhamba Road, Connaught Place, New Delhi can not bring the amount to taxation under Indian Income-tax Act. This view is clearly supported by the tribunal’s decision as above. Hence, respectfully following the precedent as above, we uphold the order of Ld. CIT(A) and decide the issue in favour of the assessee and against the revenue.”

3. Since the assessee in the instant case has stayed outside India for more than 182 days, therefore, respectfully following the decisions cited (supra), I set aside the order of the CIT (A) and direct the Assessing Officer to delete the addition.

Important Note: Sections referred in the above case laws are under Income Tax Act, 1961. Please read Income Tax Act, 2025 for relevant sections under the New Act.

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Disclaimer: Readers are advised to refer to the Income-tax Act, 1961 and the Income-tax Act, 2025 before taking any decision. The author is not responsible for consequences arising from reliance on this article.