India is preparing to move from the long-standing Income-tax Act, 1961, to the newly rolled-out Income Tax Act, 2025, effective April 1, 2026. Many salaried employees are assuming what this shift indicates for their monthly paychecks.
TDS (Tax Deducted at Source) on salary is one of the most immediate and practical areas of impact that affects take-home pay.
The Income Tax Department has released a set of FAQs addressing how employers should manage TDS during this transition period.
The following are three FAQs that every employee must know to prevent surprises in April 2026 and beyond-
Which Law Applies to March and April 2026 Salaries
- Salary for March 2026, paid on 31 March 2026, will be regulated under the Income Tax Act, 1961, since the payment was
- Salary for April 2026, paid on 30 April 2026, will be regulated under the Income Tax Act, 2025, as the payment was made on or after 1 April 2026.
Therefore, the date you obtain your salary determines the applicable tax law, not the month you earned it.
“Under the TDS provisions relating to salary, tax is required to be deducted at the time of payment. Thus, TDS on salary shall be governed by different Acts, based on the date of payment of salary,” the tax department mentioned.
In What Way Shall Employers Manage TDS in the Transition?
Employers should manage salary TDS as follows-
- For salary of FY 2025-26 (paid up to March 2026): TDS liabilities shall be as per Section 192 of the old Act
- For salary of Tax Year 2026-27 (paid from April 2026 onwards): TDS liabilities shall be as per Section 392(1) of the new Act
It implies your TDS will be reset at the beginning of the new tax year, which can revise your monthly deductions.
“The employer must reset the TDS computation from 1st April, 2026, for the new tax year, considering projected income, deductions, and tax regime for TY 2026-27,” the tax department cited in the FAQ.
Which Regulation Must Your Investment Declaration Comply With?
Concerning the tax year 2026-27, your investment declaration needs to comply with the new law (Income Tax Act, 2025). Older sections like 80C shall be substituted with the new section references and schedules.
“The investment declaration for Tax Year 2026-27 should reference the provisions of the Income Tax Act, 2025. For instance, deductions under Section 80C of the old Act will now be referenced as the Schedule XV read with section 123 of the Income Tax Act, 2025. The employer’s payroll system should be updated to reflect the new section numbering from April 2026,” the tax department mentioned.
The timing of salary payments, rather than just the salary period, determines which tax law applies. This makes a critical overlap where both the old and new tax laws are relevant.
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