If you run payroll for even one employee in India, you are — legally — a tax collector for the government. From April 1, 2026, the rulebook you’ve followed for that job for over six decades has changed.
The Income Tax Act, 1961 has been repealed and replaced by the Income Tax Act, 2025, effective April 1, 2026. For most people, this sounds like a legal footnote. For payroll and HR teams, it’s an operational deadline: new section numbers, new form names, a new default tax regime, and new filing codes — all live from Tax Year 2026-27, with real penalties for getting it wrong.
Here’s exactly what changed, what stayed the same, and what your payroll process needs to fix before your next filing cycle.
Old section references like 194C or 194J no longer exist in the new Act’s numbering. If your ERP or payroll system is still tagging vendor or contractor payments with these old codes, expect validation errors on the income tax portal.
The Big Picture: What Actually Changed
The Income Tax Act, 2025 doesn’t rewrite how tax is calculated — the core logic of TDS on salary is unchanged. What it does is restructure everything around it: section numbering, form names, terminology, and filing codes. If your payroll software, HR templates, or finance team are still referencing the old framework, your returns and certificates are technically non-compliant, even if the tax amount you deducted is correct. Here’s the transition rule to anchor everything else to: salary paid on or before March 31, 2026 falls under the old Act (Section 192). Salary paid on or after April 1, 2026 falls under the new Act (Section 392). It’s the payment date that matters, not the period the salary relates to — so March 2026 salary paid in March still follows the old rules, but the same salary paid a few days later in April would fall under the new ones.1. Section 192 Is Now Section 392 — And It’s Not the Only One
The most visible change is the renumbering. TDS on salary, previously governed by the familiar Section 192, now sits under Section 392 of the new Act. This isn’t cosmetic — every reference in your payroll software, employee communication, offer letters, and internal SOPs needs updating. The wider TDS framework has been consolidated into three broad provisions:| Old framework | New framework | Covers |
|---|---|---|
| Section 192 | Section 392 | TDS on salary |
| Sections 194C, 194J, 194I, etc. | Section 393 | TDS on all non-salary payments (residents and non-residents) |
| — | Section 394 | Remaining TDS provisions |
2. Form 16 Is Now Form 130 — And This One Has Teeth
The annual TDS certificate every employee needs to file their own return has been renamed and renumbered:- Form 16 → Form 130 (annual salary TDS certificate)
- Form 16A → Form 131 (non-salary TDS certificate)
- Form 27D → Form 133 (TCS certificate)
- Form 24Q → Form 138 (quarterly TDS return for salary)
3. New Tax Regime Is Now the Default
Under the new Act, the new tax regime applies by default when computing TDS on salary. If an employee wants to be taxed under the old regime instead, they must actively submit a declaration — now formalized as Form 122. No form, no old regime. Payroll teams need to build this into onboarding and the annual declaration cycle, not treat it as an edge case. Standard deduction amounts under the new framework:- New regime (default): ₹75,000
- Old regime (by declaration via Form 122): ₹50,000
4. Old Deduction Sections Are Renumbered — Including 80C
This is where communication gaps cause the most employee confusion. Familiar deduction sections like Section 80C are gone in name — they’re now referenced as Schedule XV read with Section 123 of the new Act. The deduction logic is largely preserved, but every investment declaration form, HR FAQ document, and payroll help-desk script that mentions “80C” needs updating for Tax Year 2026-27, or you’ll spend the next filing season fielding “where did my 80C go?” queries.5. “Assessment Year” Is Gone — It’s All “Tax Year” Now
The old Financial Year / Assessment Year split has been retired. Under the new Act, there’s a single unified concept: Tax Year, which equals the Financial Year. Income earned in Tax Year 2026-27 is filed and assessed in Tax Year 2027-28 — no separate AY terminology involved. This is a naming change, not a calculation change, but it touches everything downstream: payslips, Form 130, quarterly returns, and any employee-facing tax documentation. If your templates still say “Assessment Year,” they’re referencing a concept that no longer exists for transactions after April 1, 2026.6. New Payment Codes Replace Old Section References in Returns
Where TDS returns used to reference familiar section numbers (194C, 194J, 194I) directly, filings now use numeric payment codes ranging from 1001 to 1067, each corresponding to a specific entry under Section 393. This affects how vendor and contractor payments — not just salary — get filed, so it’s worth looping in whoever handles your non-salary TDS (professional fees, rent, contractor payments) into this transition, not just the salary payroll team. One specific catch worth flagging: supply of manpower services is now explicitly classified as “work” under the provisions aligned to the old Section 194C. If you use staffing vendors or contract labour, double-check how those payments are being coded — this reclassification can change the applicable TDS rate.What Employers Need to Do Before the Next Filing Cycle
If you haven’t already touched every one of these, treat this as your action list:- Update payroll software and ERP to reference Section 392/393/394 instead of 192/194C/194J/194I.
- Reset TDS computation from April 1, 2026 for the new tax year — the tax department has explicitly stated this reset must account for projected income, deductions, and regime for Tax Year 2026-27, not just carry forward last year’s numbers.
- Switch all certificate templates from Form 16/16A/27D/24Q to Form 130/131/133/138.
- Build Form 122 collection into your declaration cycle — since the new regime is now default, you need an active opt-in mechanism for employees who want the old regime.
- Rewrite employee-facing FAQ and declaration documents to replace “Section 80C” with “Schedule XV / Section 123,” and “Assessment Year” with “Tax Year.”
- Re-tag non-salary vendor payments, especially staffing and manpower services, against the new payment codes.
- Calendar the June 15, 2026 Form 130 deadline with enough lead time to avoid the ₹100/day/certificate penalty.
