TDS on Salary for 2026-27: New vs Old Tax Regime, Slabs and How Employers Deduct It
How employers deduct TDS on salary in tax year 2026-27 under the Income-tax Act, 2025: new and old regime slabs, ₹75,000 standard deduction, the ₹12 lakh rebate, declarations, proofs and monthly projection.
pagar karo Payroll Desk· Published 5 Sep 2026· Updated 28 Oct 2026· 3 min readEmployers must deduct income tax from salary every month based on the employee’s estimated annual income and chosen regime. Under the default new regime for 2026-27, income up to ₹12 lakh after the ₹75,000 standard deduction pays no tax because of the rebate (so salary up to ₹12.75 lakh is tax-free), and slabs rise from 5% above ₹4 lakh to 30% above ₹24 lakh. The old regime keeps deductions like 80C and HRA but has higher rates and a ₹50,000 standard deduction.
- The Income-tax Act, 2025 replaced the 1961 Act from 1 April 2026; “tax year” replaces “previous year/assessment year”.
- Budget 2026 kept the new-regime slabs and the ₹12 lakh rebate unchanged.
- New regime is the default; employees may opt for the old regime with their employer for TDS purposes.
- Spread the projected annual tax over the remaining months — don’t leave it for March.
The new Income-tax Act
From 1 April 2026 the Income-tax Act, 2025 replaced the Income-tax Act, 1961. The duty to deduct tax from salary stays the same, but section and form numbers have changed and the year is now simply the “tax year” (2026-27). Budget 2026 did not change the slabs.
New regime slabs (default) — tax year 2026-27
| Taxable income | Rate |
|---|---|
| Up to ₹4,00,000 | Nil |
| ₹4,00,001 – ₹8,00,000 | 5% |
| ₹8,00,001 – ₹12,00,000 | 10% |
| ₹12,00,001 – ₹16,00,000 | 15% |
| ₹16,00,001 – ₹20,00,000 | 20% |
| ₹20,00,001 – ₹24,00,000 | 25% |
| Above ₹24,00,000 | 30% |
- Standard deduction: ₹75,000 for salaried employees.
- Rebate: up to ₹60,000 for residents with taxable income up to ₹12 lakh (special-rate income excluded), with marginal relief just above.
- Cess: 4% health and education cess on tax.
- Few deductions: employer NPS contribution is still allowed; 80C, HRA and home-loan interest on a self-occupied house are not.
Old regime
| Taxable income | Rate (below 60 years) |
|---|---|
| Up to ₹2,50,000 | Nil |
| ₹2,50,001 – ₹5,00,000 | 5% |
| ₹5,00,001 – ₹10,00,000 | 20% |
| Above ₹10,00,000 | 30% |
Standard deduction is ₹50,000; the rebate makes tax nil up to ₹5 lakh taxable income. Deductions such as 80C (₹1.5 lakh), 80D health insurance, HRA exemption and home-loan interest are allowed — which is why some employees with large rent or investments still prefer it.
Example: which regime is better?
Gross salary ₹15,00,000. Employee pays rent and invests ₹1.5 lakh in 80C.
| New regime | Old regime | |
|---|---|---|
| Standard deduction | 75,000 | 50,000 |
| HRA exemption (assumed) | — | 1,20,000 |
| 80C + 80D | — | 1,75,000 |
| Taxable income | 14,25,000 | 11,55,000 |
| Tax + 4% cess | ≈ ₹97,500 | ≈ ₹1,65,360 |
For most salaries the new regime wins; it takes very large deductions for the old regime to come out ahead. Show employees both numbers and let them choose.
How employers deduct TDS each month
- Collect the employee’s regime choice and, for the old regime, their declarations (rent, 80C, 80D, home loan).
- Project annual salary: paid so far + this month + remaining months from the structure + previous-employer income.
- Compute annual tax under the chosen regime, subtract TDS already deducted, and divide the balance by the months left.
- Collect proofs before the year-end cut-off and recompute using approved amounts.
- Deposit TDS by the 7th of the following month and file quarterly salary TDS returns; issue the annual salary TDS certificate.
TDS in pagar karo
- Both regimes side by side for each employee, on the web and in the staff app.
- Declarations, proof upload and approval (full, part or reject) in the Declaration Center.
- Monthly projection including off-cycle payments and previous employer income.
- TDS summary and return data reports; deposits tracked on the Compliance page.
Frequently asked questions
Is salary up to ₹12.75 lakh tax-free in 2026-27?
Under the new regime, a salaried resident individual with only salary income gets the ₹75,000 standard deduction and a rebate that makes tax nil up to ₹12 lakh taxable income — so gross salary up to ₹12.75 lakh has no tax. Marginal relief applies slightly above it.
Can an employee switch regimes every year?
Salaried employees without business income can choose the regime each year — they tell the employer for TDS and can still change it when filing the return.
What if an employee joins mid-year?
Collect previous-employer income and TDS for the year (Form 12B or a statement) and include them in the projection so the year’s tax is right.
This guide is general information for employers in India, checked against the sources above on 28 Oct 2026. Rules and rates change — confirm with your CA or the official notification before acting.