Tax on Salary in India FY 2026-27: How TDS Works, Form 124 and Form 130

The Short Answer

Tax on salary is collected through the year. Your employer works out the tax on your whole year’s salary, divides it across the remaining months and deducts it every month as TDS. To do that, it needs two things from you: which regime you want, and (for the old regime) proof of your rent, investments and loans. You give these in Form 124, which replaced Form 12BB in April 2026. After the year ends, it gives you Form 130, the new name for Form 16.

TDS is only your employer’s estimate of the tax on salary, not your final tax. If you have interest, rent, capital gains or a second job, or you change your mind about the regime, your income tax return settles the difference: you pay the balance or get a refund.

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How It Works

How tax on salary is calculated as TDS

1. It projects your salary for the whole year, including bonus and taxable perks.
2. It subtracts what your regime allows: the ₹75,000 standard deduction and employer NPS in the new regime; in the old regime, the ₹50,000 standard deduction, HRA exemption, professional tax and the deductions you have declared.
3. It works out the tax on that figure, including the rebate, surcharge and 4% cess.
4. It subtracts the TDS already deducted and spreads the rest over the months left.

Because the calculation is redone each month, anything that changes (a raise, a bonus, proofs submitted in January) shows up as a jump in later months’ TDS.

An example

Neha earns ₹18 lakh a year and chooses the new regime. Taxable salary is ₹17.25 lakh after the standard deduction. The tax, with cess, is ₹1,50,800, so her employer deducts about ₹12,567 a month. If she had chosen the old regime and claimed ₹5.25 lakh of deductions, her tax would be ₹1,87,200, about ₹15,600 a month.

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Choosing a Regime

Telling your employer which regime you want

At the start of the year, your employer asks which regime to use for TDS. If you say nothing, it uses the new regime, which is the default. Employers usually accept this choice once for the year.

Our guide to choosing between the old and new regime explains the break-even point for your salary.

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Form 124

Form 124: proofs for the old regime

If you choose the old regime, your employer needs evidence before it reduces your TDS. Form 124 is the declaration; the proofs go with it.

Claim	What to give your employer
HRA	Rent receipts or agreement; landlord’s PAN if rent is above ₹1 lakh a year; whether the landlord is a relative (new from FY 2026-27)
Home loan interest	Lender’s name, address and PAN; interest certificate
Section 123 (old 80C)	Receipts or statements for PPF, ELSS, life premium, tuition fees, home loan principal
Health insurance (old 80D)	Premium receipts; preventive check-up bills
LTA	Travel tickets for the journey claimed

Most employers ask for proofs between December and February. Miss the deadline and your TDS will be higher, but you can still claim the deductions in your return.

Details: HRA exemption, section 123 deductions, section 80D.

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Form 130

Form 130: your salary certificate

Form 130 (formerly Form 16) is issued by your employer after the year ends, usually by mid-June. Part A shows the TDS deducted and deposited each quarter; Part B shows how your salary was taxed: gross pay, exemptions, deductions, regime and tax.

Before you file, check three things against Form 168 (formerly Form 26AS) and your Annual Information Statement:

• The TDS in Form 130 matches what your employer actually deposited against your PAN.
• Your PAN, name and employer’s TAN are correct.
• If you changed jobs, both employers’ salary and TDS appear.

For FY 2025-26 income, you received a Form 16 under the old Act; the new number applies from this year’s income.

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What Is Exempt

Parts of salary that are tax-free in both regimes

Item	Exemption
Standard deduction	₹75,000 (new) or ₹50,000 (old)
Employer NPS contribution	Up to 14% of basic + DA (new) or 10% (old)
Gratuity on leaving	Up to ₹20 lakh
Leave encashment on retirement or resignation (non-government)	Up to ₹25 lakh
Employer PF, NPS and superannuation together	Taxable above ₹7.5 lakh a year

In the old regime, HRA, LTA, children’s education and hostel allowances, meal vouchers and gifts are also exempt within limits. Several of these limits rose sharply from April 2026; see what the new Act changed.

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Special Situations

Changing jobs, other income, and arrears

You changed jobs during the year

Each employer deducts TDS as if its salary were your only income, and each gives you the ₹75,000 standard deduction and the lower slabs. Together they often deduct too little. Give your new employer the previous salary and TDS so it can correct the rest of the year; otherwise expect to pay the balance with your return.

You have interest, rent or capital gains

Your employer only knows your salary. You can declare other income to your employer so TDS covers it; if you do not, pay advance tax or pay the balance before filing. Interest on fixed deposits is the item most often missed. Read our guide to tax on FD and savings interest.

You received salary arrears

Arrears for earlier years can push you into a higher slab this year. Relief is available by spreading the arrears back to the years they relate to; it needs a separate form filed on the portal before you claim it in the return.

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Common Mistakes

Mistakes people make with tax on salary

1. Treating TDS as the final tax

TDS covers salary only. Interest, rent and capital gains must still be reported, and tax on them paid.

2. Not checking Form 168 before filing

If your employer deducted TDS but did not deposit it correctly, your credit will be missing. Sort it out with HR before filing.

3. Two employers, two standard deductions

Each employer allows the full standard deduction and rebate. The return allows them only once.

4. Assuming you are stuck with the employer’s regime

You can switch in your return if you file on time.

5. Missing the proof deadline and giving up

Deductions not given in TDS can still be claimed in the return, with proofs kept ready.

Questions

Frequently asked questions

What is Form 130?

The salary TDS certificate your employer gives you after the year ends. It replaced Form 16 under the Income-tax Act, 2025 and shows your salary, exemptions, deductions, regime and the tax deducted.

What is Form 124?

The declaration you give your employer for HRA, home loan interest, LTA and deductions like section 123 and 80D. It replaced Form 12BB and now also asks whether your landlord is a relative.

What happens if I do not choose a regime with my employer?

Your employer deducts TDS under the new regime, which is the default. You can still choose the old regime in your return if you file by the due date.

Can I change my regime after telling my employer?

Employers usually accept the choice once for the year, but it does not bind you. You can pick either regime in your return, if your income is not from a business.

Why was so much tax deducted in February and March?

Usually because proofs were submitted late, a bonus was paid, or proofs were rejected. The employer recalculates the year’s tax and recovers the balance in the remaining months.

I changed jobs. Why do I owe tax?

Each employer gave you the full standard deduction and lower slabs as if its salary was all you earned. Combined, your income is in a higher slab, and the return collects the difference.