The Income Tax Act, 2025 has simplified the TDS framework by consolidating numerous provisions into two principal sections—Section 392 for salary payments and Section 393 for specified non-salary payments. While the section numbers have changed, the rates, monetary thresholds and underlying policy remain largely unchanged. (Income Tax Department)
This article discusses TDS on salary, interest, dividends, winnings from lotteries and online games, along with practical guidance for deductors and taxpayers.
TDS on Salary – Section 392
One of the most significant changes under the Income Tax Act, 2025 is that Section 392 now governs deduction of tax at source from salary. This provision broadly corresponds to Section 192 of the Income-tax Act, 1961.
TDS on salary is required to be deducted at the time of payment after estimating the employee’s taxable salary for the Tax Year.
Comparison with the Earlier Law
| Income-tax Act, 1961 | Income Tax Act, 2025 | Subject |
| Section 192 | Section 392 | TDS on Salary |
Employer’s Responsibilities
Every employer should:
- Estimate annual taxable salary.
- Obtain PAN and investment declarations.
- Consider eligible deductions and exemptions.
- Consider salary received from a previous employer, where disclosed.
- Deduct TDS under Section 392.
- Deposit TDS within the prescribed due date.
- File TDS statements.
- Issue Form 16 to employees.
Employee’s Responsibilities
Every employee should:
- Furnish PAN to the employer.
- Submit investment declarations.
- Disclose previous employment salary.
- Select the applicable tax regime.
- Verify Form 16.
- Verify Form 26AS, AIS and TIS before filing the Income Tax Return.
Transition to Section 392
For payments made up to 31 March 2026, TDS on salary continues to be governed by the Income-tax Act, 1961. Salary paid on or after 1 April 2026 is governed by Section 392 of the Income Tax Act, 2025. Employers should reset their payroll computations from Tax Year 2026–27 using the new statutory references.
TDS on Interest
Banks, co-operative societies and other specified persons may be required to deduct TDS from interest payments once the prescribed monetary threshold is exceeded.
Examples include:
- Fixed Deposit interest
- Recurring Deposit interest
- Interest on certain securities
- Other taxable interest payments
The Income Tax Act, 2025 consolidates these provisions under Section 393, without materially changing the existing thresholds or rates.
TDS on Dividends
Dividend payments continue to attract TDS in specified circumstances.
Companies paying dividends should verify:
- Residential status of the shareholder.
- Applicable threshold.
- Availability of lower or nil deduction certificates, wherever applicable.
These provisions are now covered under Section 393.
TDS on Winnings from Lottery, Crossword Puzzles and Horse Races
Tax is deductible on specified winnings, including:
- Lottery
- Crossword puzzles
- Horse races
- Other notified winnings
The applicable provisions have been reorganised under Section 393 of the Income Tax Act, 2025.
TDS on Online Gaming Winnings
The Income Tax Act, 2025 continues the TDS mechanism applicable to winnings from online games.
Persons operating online gaming platforms should ensure deduction of TDS before releasing winnings, in accordance with the applicable provisions under Section 393.
Form 15G and Form 15H (Introduction of Form No. 121 under the Income Tax Act, 2025)
One of the notable procedural changes introduced under the Income Tax Act, 2025 is the replacement of the earlier Form 15G and Form 15H with a single consolidated declaration, Form No. 121. This change has been made to simplify the process of claiming non-deduction of Tax Deducted at Source (TDS) on specified incomes where the taxpayer satisfies the prescribed conditions. From Tax Year 2026–27, eligible taxpayers are required to furnish Form No. 121 instead of the separate Forms 15G or 15H that were prescribed under the Income-tax Act, 1961.
The legal basis for furnishing this declaration has also changed. Under the Income-tax Act, 1961, declarations for non-deduction of tax were governed by Section 197A, whereas under the Income Tax Act, 2025, the corresponding provision is Section 393(6). Although the statutory reference has changed, the underlying objective remains the same—to enable eligible taxpayers to receive specified incomes without deduction of tax at source where their estimated tax liability for the Tax Year is nil and the prescribed conditions are fulfilled.
Comparison of Old and New Forms
| Particulars | Income-tax Act, 1961 | Income Tax Act, 2025 |
| Declaration for non-deduction of TDS | Form 15G | Form No. 121 |
| Declaration by Senior Citizens | Form 15H | Form No. 121 |
| Relevant Provision | Section 197A | Section 393(6) |
| Applicable From | Up to 31 March 2026 | From 1 April 2026 |
The introduction of Form No. 121 creates a single, uniform declaration mechanism for all eligible persons, thereby reducing procedural complexity and improving compliance. Deductors such as banks, financial institutions, companies and other specified persons should ensure that they obtain Form No. 121, wherever applicable, before deciding not to deduct TDS on eligible payments. Similarly, taxpayers should carefully verify that they satisfy all the statutory conditions before submitting the declaration, as furnishing an incorrect declaration may attract consequences under the Income Tax Act, 2025.
You can download Form 121 here
Common Mistakes by Employers
- Quoting old section numbers after 1 April 2026.
- Incorrect estimation of annual salary.
- Ignoring previous employer salary.
- Incorrect tax regime selection.
- Delay in depositing TDS.
- Errors in TDS statements.
- Delay in issuing Form 16.
Common Mistakes by Employees
- Not submitting investment declarations.
- Failure to disclose previous employment.
- Ignoring bank interest.
- Assuming Form 16 alone is sufficient.
- Not verifying AIS and Form 26AS.
- Choosing the wrong tax regime.
Practical Illustrations
Illustration 1 – Salary
An employer pays salary for April 2026 on 30 April 2026.
Result: TDS shall be deducted under Section 392 of the Income Tax Act, 2025.
Illustration 2 – Fixed Deposit Interest
A bank credits Fixed Deposit interest exceeding the prescribed threshold.
Result: The bank should examine whether TDS is deductible under Section 393 before crediting the interest.
Illustration 3 – Previous Employer
An employee joins a new company during the Tax Year and discloses salary received from the previous employer.
Result: The new employer should consider the earlier salary while estimating annual taxable income for TDS purposes.
Illustration 4 – Dividend
A company declares dividend to resident shareholders.
Result: The company should determine whether TDS is applicable under Section 393, after considering the prescribed threshold and statutory conditions.
Illustration 5 – Online Gaming
An online gaming platform releases winnings to a player.
Result: The operator should examine the TDS obligations under Section 393 before releasing the winnings.
Frequently Asked Questions (FAQs)
1. Which section governs TDS on salary under the Income Tax Act, 2025?
Under the Income Tax Act, 2025, TDS on salary is governed by Section 392. This section corresponds to Section 192 of the Income-tax Act, 1961.
2. Has the procedure for deducting TDS on salary changed under the Income Tax Act, 2025?
No. The procedure for estimating taxable salary and deducting TDS remains largely the same. The major change is the renumbering and consolidation of the statutory provisions.
3. When should an employer deduct TDS from salary?
The employer should deduct TDS at the time of payment of salary after estimating the employee’s taxable income for the Tax Year.
4. What information should an employee provide to the employer for correct TDS deduction?
Employees should furnish:
- PAN
- Investment declarations
- Details of salary from the previous employer, if any
- Information relating to deductions and exemptions
- Choice of the applicable tax regime
5. What is Form No. 121 under the Income Tax Act, 2025?
Form No. 121 is a new consolidated declaration introduced under the Income Tax Act, 2025. It replaces the earlier Form 15G and Form 15H for eligible taxpayers seeking non-deduction of TDS on specified incomes, subject to the prescribed conditions.
6. Which forms have been replaced by Form No. 121?
From 1 April 2026, Form 15G and Form 15H have been replaced by Form No. 121 under the Income Tax Act, 2025.
7. Which section governs Form No. 121?
Form No. 121 is governed by Section 393(6) of the Income Tax Act, 2025, corresponding to Section 197A of the Income-tax Act, 1961.
8. Is Form No. 121 applicable to senior citizens?
Yes. The separate Form 15H has been discontinued. Eligible senior citizens are also required to furnish Form No. 121, subject to the conditions prescribed under the Income Tax Act, 2025.
9. Does submission of Form No. 121 automatically exempt every income from TDS?
No. Form No. 121 can be furnished only for specified incomes and only if the statutory conditions are satisfied. It cannot be used to avoid TDS where the law does not permit such a declaration.
10. Is TDS deducted on bank fixed deposit interest?
Yes. Banks are required to examine whether TDS is deductible on interest payments after considering the applicable threshold limits and other statutory provisions.
11. Is TDS applicable on dividend income?
Yes. Dividend payments may be subject to TDS in accordance with the provisions of the Income Tax Act, 2025, subject to the prescribed conditions and thresholds.
12. Is TDS deducted on winnings from lottery and online games?
Yes. Winnings from lotteries, crossword puzzles, horse races and online games may attract TDS under the applicable provisions of the Income Tax Act, 2025.
13. What happens if PAN is not furnished to the deductor?
Failure to furnish a valid PAN may result in deduction of TDS at a higher rate as prescribed under the Income Tax Act.
14. How can I verify whether TDS has been deducted correctly?
Taxpayers should verify the details available in:
- Form 16 or Form 16A
- Form 26AS
- Annual Information Statement (AIS)
- Taxpayer Information Statement (TIS)
before filing the Income Tax Return.
15. What should I do if TDS shown in Form 16 does not appear in Form 26AS?
You should immediately contact the deductor and request correction of the TDS statement, if required. TDS credit should always be reconciled before filing the Income Tax Return.
16. Can I claim TDS credit if the deductor has not deposited the tax?
TDS credit is generally governed by the provisions of the Income Tax Act and the information available in the Income Tax Department’s records. In case of any discrepancy, the deductee should approach the deductor for necessary rectification.
17. What are the common mistakes made by employers while deducting TDS?
Common mistakes include:
- Incorrect salary estimation.
- Ignoring previous employer salary.
- Incorrect tax regime selection.
- Delay in depositing TDS.
- Errors in TDS statements.
- Incorrect PAN or section code.
18. What are the common mistakes made by employees regarding TDS?
Employees often:
- Do not submit investment declarations.
- Fail to disclose previous employment.
- Ignore bank interest income.
- Do not verify Form 26AS or AIS.
- Assume Form 16 is sufficient for filing the Income Tax Return.
19. Has the scope of TDS changed under the Income Tax Act, 2025?
The scope and objectives of TDS remain substantially the same. The principal changes relate to the simplification and restructuring of the provisions, including consolidation under Sections 392 and 393.
20. What will be covered in Part 3 of this series?
Part 3 will discuss TDS on contractor payments, professional fees, rent, commission, brokerage, property transactions, e-commerce payments and other business-related payments, along with practical examples, FAQs, common mistakes and a comparison between the Income-tax Act, 1961 and the Income Tax Act, 2025.
Key Takeaways
- Section 392 governs TDS on salary.
- Section 393 consolidates TDS provisions relating to most non-salary payments.
- The restructuring primarily changes the statutory references; the underlying TDS policy remains substantially the same.
- Employers should update payroll systems and internal documentation to reflect the new section numbers.
- Taxpayers should reconcile Form 16, Form 26AS, AIS and TIS before filing the Income Tax Return.
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