Section 392 of the Income Tax Act 2025 - TDS on Salary Explained

Section 392 states that Tax Deduction at Source (TDS) is required on salary income and certain lump-sum payments made to employees from provident fund or Superannuation fund balances. It places a responsibility on employers to deduct tax at the time of paying salary, based on the employee's estimated taxable income for the Financial year. 

What is Section 392 of the Income Tax Act 2025?

Section 392 regulates TDS on income chargeable under the head 'Salary' and on accumulated balances due to employees from provident and superannuation funds. This has eight sub-sections, each covering a distinct situation.

Who is covered under Section 392?

How is TDS on Salary calculated under Section 392?

Key element from these provisions 

1. Deduction is at the time of payment 
2. At the average rate of Income tax
3. On the estimated income of the assessee for the full tax year. 
4. Based on rates in force for that tax year. 

New Tax Regime - Section 202(1) of the Income Tax Act 2025

Section 202(1) states that the income-tax payable by an individual shall, unless the person exercises the option in the manner provided as per Sub-Section(4), be computed at the following rates. 

For people who are below 60 years of age, as per the Old Tax regime slabs. 

TDS on NON-monetary Prerequisites as per Section 392(2)

1. Employers can pay tax on non-cash benefits given to employees themselves, rather than deducting them from employees' salaries. 
2. Tax is calculated at the employee's average salary tax rate.

TDS on ESOP for Eligible Start-UPS as per Section 392(3)

If a company is registered as an eligible start-up as per Section 140, and gives ESOPs to its employees, then 

1. The start-up has to deduct or pay TDS on the value of those shares. 
2. Tax, which is calculated using the applicable tax rates
3. The TDS has to be paid in the same year the shares are allotted or transferred to the employee.
4. Section 289(3) states that the payment deadline is specified. 

Section 17(1)(d) states that the ESOP income is, when a company gives its employees shares or stock options as part of their salary, this benefit is treated as salary income as mentioned under the Income Tax Act. 

Eligible start-up under Section 140(16)(b)- mentions a company or limited liability partnership engaged in an eligible business that 

1. Is incorporated on or after 1 April 2016 but before 1 April 2030
2. Has a total turnover not exceeding three hundred crore rupees in the relevant tax year
3. Holds a certificate of eligible business from the Inter-Ministerial Board of Certification. 

What are the Employee Declarations and Employer Obligations as per Section 392(4) and 392(5)?

As per Section 392(4)(a), the person is responsible for payment as per sub-section (1)-

1. Any income under the head ‘Salaries’ due or received from any other employer or employee during the tax year.
2. Any relief allowable as per section 157, where the assessee is a Government employee or servant in a company, co-operative society, university, institution, or local authority, is entitled to such relief 
3. Any loss as per the Head ‘Income from House Property’ for the same tax year.
4. Any income chargeable under any other head of income, not being a loss under any such head other than house property loss. 

Section 392(4)(b) states the restriction- The tax deductible from the income under the head ‘Salaries’ shall not be reduced in any case, other than on account of 

1. Any loss under the head of income from house property
2. The tax is deducted and collected as per other provisions.

Additionally, Section 392(5) mentions the employer’s three Statutory Obligations as mentioned below-

1. Furnish a statement in such a manner as may be prescribed, with correct and complete particulars of prerequisites or profits in lieu of salary paid, along with their value to the assessee. 
2. For the purpose of prescribed claims inclusive of claim for set off loss, as per the provisions of this Act, in such manner as may be prescribed. 
3. May, increase the amount to be deducted as per this section for adjusting any excess or deficiency arising out of any previous deduction or failure to deduct during the tax year. 

TDS on Provident Fund and Superannuation Withdrawals Section 392(6) and Section 392(7)

When an employee withdraws their accumulated balance from a provident fund before completing five years of continuous service, the withdrawal is taxable. In this scenario, the trustee of the PF must deduct TDS from the payout as per the rules which is specified in Schedule XI.

Section 392(7)-EPF Withdrawals above Rupees 50,000

As per Section 392(7) the trustees of the Employees’ Provident Fund Scheme, 1952 must deduct TDS at 10%

1. The aggregate amount of the accumulated balance paid is 50,000 Rupees or more.
2. The amount is included in the employee’s total income as the five-year continuous service condition is not satisfied. 

This is the continuation of the previous section 192A of the Income Tax Act 1961, which is now merged in Section 392 of the 2025 Act. 

TDS on salary in Foreign Currency- Section 392(8)

The salary amount in foreign currency must be converted to Indian Rupees using the mentioned exchange rate, and TDS is then calculated on the Rupee equivalent. 

This is required for international organisations, multinational companies and Indian employees on overseas deputation who receive a portion of their compensation abroad but is taxed in India. 

What are the key differences between Section 392 and Section 192 of the Income Tax Act 1961?