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Income Tax · New ActIncome-tax Act 2025 for salaried employees: what to check
If you draw a salary, the new Act changes the paperwork more than the tax. Form 16 becomes Form 130, Form 12BB becomes Form 124, more cities qualify for 50% HRA and some allowances got higher limits. Here is a practical checklist for Tax Year 2026-27.
Salaried taxpayers are the largest group affected by the move to the Income-tax Act, 2025. The good news: rates, rebate and standard deduction are unchanged. The work is in updating declarations and understanding new forms. Salary is taxed under Sections 15–19 of the new Act, and TDS on salary is under Section 392 (old Section 192).
What stays the same
- New regime as default, with slabs from 0% to 30% and the ₹12 lakh rebate – see Section 202 explained.
- Standard deduction of ₹75,000 (new) / ₹50,000 (old).
- Old regime deductions – 80C (now Section 123), 80D (Section 126), home-loan interest, HRA – for those who opt out.
- Monthly TDS by the employer on estimated annual income.
What changes
| Item | Up to FY 2025-26 | From Tax Year 2026-27 |
|---|---|---|
| TDS on salary | Section 192 | Section 392 |
| Annual TDS certificate | Form 16 | Form 130 |
| Declaration to employer | Form 12BB | Form 124 |
| 50% HRA cities | Delhi, Mumbai, Kolkata, Chennai | + Bengaluru, Hyderabad, Pune, Ahmedabad |
| Children's education allowance (old regime) | ₹100 per child per month | Up to ₹3,000 per child per month |
| Hostel allowance (old regime) | ₹300 per child per month | Up to ₹9,000 per child per month |
| Meal vouchers (old regime) | ₹50 per meal | ₹200 per meal |
Allowance limits above are as announced with the 2026 Rules; confirm the final notified values with your payroll team.
Worked example: does the new allowance limit change the regime choice?
Example: Vikas, an employee in Delhi with two school-going children, earns ₹16,00,000 including HRA of ₹3,00,000 (basic ₹8,00,000). He pays rent of ₹3,60,000 and invests ₹1,50,000 under Section 123 (old 80C). His employer restructures salary to give children's education allowance of ₹72,000 (₹3,000 × 2 × 12) and hostel allowance nil.
| New regime | Old regime | |
|---|---|---|
| Gross salary | ₹16,00,000 | ₹16,00,000 |
| Standard deduction | ₹75,000 | ₹50,000 |
| HRA exempt (least of ₹3,00,000; ₹2,80,000; ₹4,00,000) | — | ₹2,80,000 |
| Education allowance exempt | — | ₹72,000 |
| Section 123 (80C) | — | ₹1,50,000 |
| Taxable income | ₹15,25,000 | ₹10,48,000 |
| Tax on slabs | ₹1,08,750 | ₹1,26,900 |
| Cess 4% | ₹4,350 | ₹5,076 |
| Total tax | ₹1,13,100 | ₹1,31,976 |
New regime: ₹20,000 (₹4–8 lakh) + ₹40,000 (₹8–12 lakh) + 15% of ₹3,25,000 (₹48,750) = ₹1,08,750. Old regime: ₹12,500 + ₹1,00,000 + 30% of ₹48,000 (₹14,400) = ₹1,26,900.
Even with the higher allowance limits, the new regime saves Vikas about ₹18,900. The higher limits narrow the gap but rarely reverse it unless home-loan interest is also claimed. Run your own case on the income tax calculator.
Checklist for Tax Year 2026-27
- Choose your regime with the employer at the start of the year (you can still change it in the return if you have no business income).
- Submit Form 124 with rent receipts, landlord PAN (rent above ₹1 lakh), LTA proofs and investment evidence.
- Check your payslip TDS each quarter; adjust declarations if income changes.
- Declare other income (interest, rent, capital gains) to the employer if you want it covered by TDS, or pay advance tax.
- Download AIS mid-year to catch mismatches early.
- Collect Form 130 after year end (by 15 June 2027) and match it with Form 26AS.
Arrears and job changes
- Job change: give the new employer details of salary and TDS from the previous employer; otherwise two standard deductions and two rebates may be wrongly applied, leading to a demand.
- Salary arrears: relief similar to old Section 89 is available – see salary arrears relief.
Common mistakes
- Not giving landlord PAN, so HRA is not allowed by the employer.
- Claiming HRA and also Section 134 (old 80GG) – not allowed together.
- Ignoring interest income because "TDS has been deducted" – 10% TDS may be less than your slab rate.
- Not reporting exempt allowances correctly in the return.
Key takeaway
For salaried employees, the 2025 Act is mostly new labels on familiar rules – but higher allowance limits and the wider HRA list may matter in the old regime. Compare regimes once a year. Our ITR filing team can review your Form 130 and declarations.
Official references
Provisions discussed (summaries in our Law Library):
- Income-tax Act, 2025 – Section 15–19 (corresponds to 15–17): Salaries
- Income-tax Act, 1961 – Section 15–17 (corresponds to 15–19): Salaries
- Income-tax Act, 2025 – Section 392 (corresponds to 192): TDS on salary
- Income-tax Act, 1961 – Section 192 (corresponds to 392): TDS on salary
Official sources to verify the current text, notifications and circulars:
Frequently asked questions
Will my employer deduct more TDS under the new Act?
Not because of the new Act – slab rates are unchanged. TDS depends on the regime you choose and the declarations you make in Form 124.
Is salary up to ₹12.75 lakh tax-free in Tax Year 2026-27?
Under the new regime, yes, for a resident individual whose only income is salary – ₹12 lakh after the ₹75,000 standard deduction attracts full rebate.
Do I need my landlord's PAN for HRA?
Yes, where rent paid exceeds ₹1 lakh in the year. Form 124 also asks for landlord details.
Is the employer's NPS contribution deductible in the new regime?
Yes. The deduction for the employer's contribution to NPS is available in both regimes, within the prescribed percentage of salary.
Is leave encashment on retirement still exempt?
Yes, within the prescribed limits under the salary provisions of the 2025 Act (carried over from Section 10(10AA)). Government employees get full exemption; others are subject to the notified cap.
Will my employer deduct TDS on interest I declare?
Only if you declare other income to the employer and ask them to consider it. Otherwise, pay advance tax yourself if total tax after TDS exceeds ₹10,000.
Is gratuity taxable under the new Act?
Gratuity remains exempt within limits – fully for government employees and up to the notified limit for others – under Section 19 of the 2025 Act.
This article is general information on the law as on 10 November 2026, written for educational purposes. It is not professional advice for your case. Section numbers under the Income-tax Act, 2025 should be confirmed with the official section mapping on the Income Tax Department website before use in filings.
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