TDS on Salary Under Section 192: Why Employers Get It Wrong and How to Cross-Check Your Form 16

Your employer deducts TDS from your salary every month. But here's the uncomfortable reality: employers routinely compute it incorrectly — and you're the one who bears the consequences when you file your ITR. Either you discover a large demand because too little was deducted, or you've been sitting on a refund that the government has been holding all year. This explainer walks through how Section 192 of the Income Tax Act, 1961 actually works, the four most common employer errors, and exactly how to cross-check your Form 16 before you trust the numbers.

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How Section 192 Works: The Mechanics of Salary TDS

Section 192 of the ITA 1961 governs TDS on salary. Unlike other TDS sections that prescribe a fixed rate (say, 10% under Section 194A for interest), Section 192 uses an average rate calculation.

The formula is:

TDS per month = Estimated annual income-tax liability ÷ Number of months remaining in the financial year

At the start of the year (April), the employer estimates your full-year taxable salary, computes the total tax payable, and divides it across 12 months. If your salary changes mid-year — a bonus, a hike, a one-time payment — the employer recalculates and adjusts the monthly deduction.

Key point: There is no "flat rate" under Section 192. The rate is always derived from your estimated tax liability.

New Regime Default Since FY 2025-26

From FY 2025-26 onwards (AY 2026-27), the employer must apply the new tax regime under Section 115BAC by default. If you want the old regime — with its HRA exemption, Section 80C deductions, home loan interest under Section 24(b) — you must submit a written declaration to your employer.

If you do nothing, your employer computes TDS under the new regime slabs (₹0 to ₹3L at nil, ₹3L–₹7L at 5%, ₹7L–₹10L at 10%, ₹10L–₹12L at 15%, ₹12L–₹15L at 20%, above ₹15L at 30% — with the ₹75,000 standard deduction under the new regime).

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The Four Most Common Employer TDS Errors

Error 1: Not Switching Regime After Employee Declaration

When an employee submits a declaration for the old regime, the employer must recompute TDS from the current month. Employers sometimes miss this, continuing to deduct at new-regime rates even after the declaration.

Result: If the old regime gives you a lower tax (because you claim ₹1.5L under 80C, ₹2L home loan interest, and HRA exemption), your actual tax liability is lower than what's been deducted. You get a refund in your ITR, but you've lost the benefit of that cash all year.

Cross-check: Compare the regime reflected in Part B of your Form 16 with what you declared to HR.

Error 2: Wrong Valuation of Perquisites Under Rule 3

Perquisites — rent-free accommodation, company car, ESOPs vesting, meal vouchers, club membership — are part of taxable salary under Section 17(2). They must be valued as per Rule 3 of the Income Tax Rules, not at cost.

For example, rent-free accommodation in a city with a population above 25 lakh is valued at 15% of salary — not at the actual rent the employer pays.

ESOP vesting is a particularly sharp trap: under Section 17(2)(vi), the difference between the FMV on the date of exercise and the exercise price is a perquisite taxable in the year of exercise — not the year of grant or sale. Employers must deduct TDS on this in the month of exercise. Many fail to do so, leaving a surprise demand in the employee's ITR.

Error 3: Ignoring Loss from House Property

Under the old regime, Section 24(b) allows a deduction of up to ₹2 lakh per year on interest paid on a home loan for a self-occupied property. This loss reduces your taxable salary and therefore your TDS. But the employer can only account for it if you submit it on Form 12BB with supporting documentation.

Employers either forget to ask for this, or employees forget to submit it. The result: excess TDS all year. The correction happens when you file your ITR.

Note: Under the new regime, Section 24(b) deduction for self-occupied property is not available.

Error 4: Not Giving Credit for Previous Employer's TDS

If you changed jobs during FY 2025-26, you had two employers in the same financial year. Your new employer may not have accounted for the income earned from and TDS deducted by your previous employer — leading them to compute TDS on only the new employer's salary.

Section 192(2) provides the solution: you should submit a certificate from your previous employer (or provide details from their Form 16) to your new employer so they can account for it.

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How to Cross-Check Your Form 16

Form 16 has two parts. Both matter.

Part A is issued by your employer via the TRACES portal and shows the TDS deducted and deposited quarter by quarter. This is the legally authoritative record.

Part B is a summary prepared by the employer showing your salary breakup: basic, HRA, allowances, perquisites, and the deductions claimed — the entire working from gross salary to taxable income to tax.

Step 1: Download Your Annual Information Statement (AIS)

The AIS (accessible from the income tax portal at incometax.gov.in under Services → Annual Information Statement) shows salary credits, TDS, advance tax paid, foreign remittances, and more.

Match the TDS in Part A of Form 16 with the salary TDS entry in your AIS. They must match exactly. If they don't match, you need to get the employer to file a TDS correction statement (TRACES correction) before you file your ITR.

Do not file your ITR until AIS and Form 16 Part A match.

Step 2: Match Part B Salary Breakup with Your Payslips

Add up your payslips for April 2025 to March 2026. Your gross salary total should equal the gross salary in Part B. Common discrepancies:

• One month's salary missed


• Bonus paid in Q3 reflected in employer's records but not in payslips


• Perquisites not shown in payslips but added in Part B (these are paper entries — correct under Rule 3)

Step 3: Verify the Regime Applied

Part B shows the deductions considered: if you're on the old regime, you should see HRA exemption, 80C deductions, home loan interest, etc. If you're on the new regime, the only deduction should be the ₹75,000 standard deduction and any employer's NPS contribution under Section 80CCD(2).

Step 4: Check That All Perquisites Are Included

If you received ESOPs, company car, accommodation, or meal vouchers, these should appear as perquisites in Part B. If they're absent, your taxable salary is understated, which means TDS was understated. You'll owe the difference — plus interest under Section 234B.

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FAQ

Q: My employer applied the new regime even though I submitted the old-regime declaration. What do I do?

For FY 2025-26, you can switch the regime when you file your ITR — the employer's application is not binding on your return. File under old regime if beneficial, claim the difference as refund or pay the balance.

Q: I changed jobs in November. My new employer didn't ask for my previous salary details. What happens?

You'll likely have a shortfall because your new employer computed TDS only on your new-employer salary. When you file your ITR and aggregate income from both employers, the combined income may push you into a higher slab. Pay any balance as self-assessment tax under Section 140A before filing to avoid interest under Section 234B.

Q: Part A and AIS show different TDS amounts. Whose number do I use in the ITR?

The AIS/Form 26AS reflects what the government has received. You can only claim credit for what appears in AIS. Ask your employer to check their TDS return filing (Form 24Q) — the mismatch often traces to an error there.

Q: My Form 16 doesn't show my ESOP perquisite even though I exercised options this year. Is that a problem?

Yes. If your employer omitted it, your taxable salary in Part B is understated. You must report the perquisite income in your ITR yourself. The tax and interest (Section 234B/234C) is your liability — your employer's omission doesn't protect you.

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The Bottom Line

Don't file your ITR by copy-pasting numbers from Form 16. Verify the regime, check that perquisites are valued correctly, cross-match with AIS, and reconcile salary breakup against payslips. Section 192 puts the initial burden on your employer — but the final tax liability is always yours.

For a detailed review of your Form 16 before you file, reach out to us at harunraaj.com/contact.

Harun Raaj & Associates | NRI Tax Specialists

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