Form 130 Replaces Form 16: Salary TDS Certificate Guide for FY 2026-27

India's tax compliance calendar just got a quiet but significant update that every employer—and every CA advising them—needs to act on now. The Form 16 you have been downloading from TRACES and handing to employees at the end of each financial year for over three decades is no longer valid for FY 2026-27. In its place, the Income Tax Act, 2025 has introduced Form 130: a redesigned salary TDS certificate with a wider scope, a cleaner structure, and stricter issuance rules. If your payroll workflow still says "generate Form 16," you are already out of compliance.

This is not a cosmetic change. Form 130 applies to all employers deducting TDS on salaries under Section 392 of the Income Tax Act, 2025—the successor to the old Section 192. It also extends to pension disbursers and to banks and NBFCs deducting TDS on interest income for specified senior citizens under Section 395. Understanding the differences now, and updating your processes accordingly, will save your clients from rejected certificates, employee grievances, and potential notices during future scrutiny.

What Changed: Income Tax Act 2025 and Section 392

The Income Tax Act, 2025 came into force with effect from April 1, 2026, replacing the Income Tax Act, 1961 in its entirety. One of its structural goals was consolidation: all TDS provisions previously scattered across Sections 192 to 194T have been brought together under three omnibus sections—Section 392 (TDS for residents), Section 393 (TDS for non-salary residents and non-residents), and Section 394 (TCS).

Section 392 is now the sole provision governing TDS on salary, pension, and specified senior citizen interest income. Where you previously looked to Section 192 for salary TDS and Section 194P for the senior citizen simplified deduction, Section 392 now covers all of these in a single framework.

Form 130 is the TDS certificate mandated for issuance under Section 392. CBDT has specified under the Income Tax Rules, 2026 that Form 130 must be generated exclusively through the TRACES portal. An employer who prepares a salary computation offline and labels it Form 130 is not issuing a legally valid certificate.

Form 130 vs Form 16: What Exactly Changed

For most salary payments, Form 130 will feel familiar because it carries the same essential information. But structural and scope differences are significant enough to warrant an overhaul of your payroll processes.

Structure Comparison

Part A captures employer details, employee PAN, period of employment, and quarter-wise TDS deposited. Its purpose is identical to old Form 16 Part A and it is generated from TRACES after the quarterly TDS return for each period is processed and accepted.

Part B provides a summary of income paid and TDS deducted, equivalent to old Form 16 Part B. Under the new format, Part B carries a high-level summary while the detailed computation moves to Part C.

Part C is entirely new. It contains annexures with the full salary computation: gross salary components (basic, HRA, special allowance, perquisites), all deductions under the applicable chapter of the Income Tax Act 2025, net taxable income, and final tax liability. For pension recipients, Part C carries a separate annexure. For specified senior citizens with interest income under Section 395, there is a third annexure.

What Stayed the Same

The core obligation has not changed. An employer must compute estimated annual income at the start of the year, deduct TDS at applicable slab rates each month, deposit by the 7th of the following month (30th for March), file quarterly TDS returns, and issue Form 130 annually by June 15. The TRACES generation process, reconciliation logic, and the employee's right to raise grievances for missing TDS credits remain unchanged.

Who Is Affected

If you are an employer of any size—a proprietorship with two staff or a company with 5,000 employees—and you deduct TDS on salary, Form 130 applies to you. There are no exemptions by entity type, turnover, or headcount.

Pension disbursers: Banks, insurance companies, and public sector undertakings disbursing pensions now fall under Section 392. Form 130 covers those payments.

Specified senior citizens: Under Section 395, banks and NBFCs that compute and deduct tax on behalf of senior citizens above age 75 who have no other income must also issue Form 130 with the relevant Part C annexure. This scope extension did not exist for Form 16.

Timelines and Deadlines for Tax Year 2026-27

Here is the compliance calendar every CA and payroll manager should track for the current year:

• Monthly: TDS on salary deposited to the government by the 7th of the following month (30th for March)
• July 31, 2026 (Q1): Quarterly TDS return for April–June 2026
• October 31, 2026 (Q2): Quarterly TDS return for July–September 2026
• January 31, 2027 (Q3): Quarterly TDS return for October–December 2026
• May 31, 2027 (Q4): Quarterly TDS return for January–March 2027
• June 15, 2027: Form 130 must be issued to every employee for Tax Year 2026-27

If Form 130 is not issued by June 15, 2027, the certificate is invalid and the employer faces a penalty of ₹100 per day per employee for the delay. For a company with 200 employees issuing Form 130 just 10 days late: ₹100 × 200 × 10 = ₹2,00,000 in penalty—entirely avoidable with timely quarterly return filing throughout the year.

How to Generate Form 130 on TRACES: Step by Step

1. 1Log in to TRACES at traces.gov.in using your TAN credentials. If your client has not yet activated their TAN on TRACES, complete registration before any other step—Form 130 cannot be generated without it.

1. 1File all quarterly TDS returns. Form 130 can only be generated after the quarterly return for each period has been processed and accepted without errors. A pending or rejected return blocks generation for the affected quarter.

1. 1Navigate to the Form 130 download section. On TRACES, go to Downloads and select the appropriate form. The portal interface may display legacy labels during the phased update—refer to current TRACES advisories for exact navigation steps.

1. 1Select the tax year and PAN range. You can bulk-select all employees or generate for a specific PAN. Submit the request.

1. 1Download the processed zip file. TRACES sends an email notification when the Part A files are ready. Extract the individual PDFs.

1. 1Append Part C from your payroll software. Your salary processing system must export the Part C annexure data—the detailed salary computation—which is merged with the TRACES-generated Parts A and B before issuance.

1. 1Issue to employees by June 15, 2027. Digital delivery via email or employee self-service portal is acceptable; a physical copy is not required.

What Employers and CAs Must Do Now

For Employers

Update payroll software immediately. Any system still producing TDS certificates headed "Form 16" for Tax Year 2026-27 is non-compliant. Confirm with your vendor that the software generates Part C annexures under the new format and computes TDS under Section 392.

Collect fresh investment declarations. Employees must submit their declarations for Tax Year 2026-27 under Income Tax Rules, 2026. These feed directly into the monthly TDS computation and must be updated at the start of the year or whenever the employee's circumstances change.

Verify PAN–Aadhaar linking for all employees. Unlinked PANs attract TDS at double the applicable rate, inflating employees' tax burden and creating year-end reconciliation issues. Run a PAN–Aadhaar status check on your employee master before the next payroll cycle.

Ensure TRACES access is active for your TAN. TRACES registration and login activation must be in place well before June 2027. Many smaller employers discover a dormant TRACES account only when Form 16 was due—the Form 130 deadline carries identical urgency.

For CAs Advising Employer Clients

Brief payroll and HR contacts at each client company clearly: Form 16 for Tax Year 2026-27 is legally invalid. Form 130, generated exclusively from TRACES, is the only acceptable salary TDS certificate going forward.

Where you are managing TDS compliance end-to-end, verify that your software produces Part C accurately for complex salary structures—including perquisites (company car, rent-free accommodation, ESOPs), deferred bonuses, and cases involving multiple employers within the same year.

For pension-disbursing clients and those with large senior citizen depositor bases, confirm whether the Section 395 annexure is required and whether TRACES is configured to produce it alongside the standard Form 130.

A Rupee Example: What Correct Part C Must Show

Consider an employee earning ₹14,40,000 annual CTC at a trading company in Mumbai. The Part C computation in Form 130 must show:

• Gross salary: ₹14,40,000
• Less: HRA exemption (metro rented accommodation): ₹1,20,000
• Less: Standard deduction under Income Tax Act 2025: ₹75,000
• Taxable salary: ₹12,45,000
• Tax computation: ₹3–₹7 lakh slab at 5% = ₹20,000; ₹7–₹10 lakh at 10% = ₹30,000; ₹10–₹12 lakh at 15% = ₹30,000; ₹12–₹12.45 lakh at 20% = ₹9,000
• Gross tax: ₹89,000 + 4% health and education cess = ₹92,560
• Monthly TDS deduction: ₹92,560 ÷ 12 = ₹7,713

If this computation is absent or inaccurate in Part C, the employee's ITR prefill from AIS will not reconcile with the Form 130 data, and a mismatch notice becomes a near-certainty.

Common Mistakes to Avoid

Issuing Form 16 for Tax Year 2026-27. Any TDS certificate headed "Form 16" for FY 2026-27 is legally invalid under the Income Tax Act, 2025. Employees cannot use it to file their ITR, and the employer has failed their statutory obligation for the year.

Preparing Form 130 offline. An Excel-based or manually signed certificate labelled Form 130 is not valid. Generation through TRACES is mandatory—there are no exceptions, regardless of employer size.

Treating pension TDS separately from salary TDS. Under the new Act, pension TDS falls under Section 392 alongside salary TDS. Both are covered in Form 130, not in separate documents.

Filing the Q4 TDS return late and blocking Form 130. If the Q4 return (due May 31, 2027) is delayed, TRACES cannot generate Form 130 for the year. Every employee of that employer faces a late certificate, which cascades into ITR filing problems for all of them.

Skipping AIS reconciliation before issuance. Reconcile each employee's Form 130 data with their AIS before issuing the certificate. If TRACES shows ₹92,560 deducted but AIS reflects a lower figure due to a challan credit mismatch, raise a TRACES correction request first—not after the employee raises a grievance.

Key Takeaways

• Form 130 replaces Form 16 from Tax Year 2026-27 (April 1, 2026) under Section 392 of the Income Tax Act, 2025. Issuing Form 16 for the current financial year is non-compliant.
• Three-part structure: Part A (employer–employee details and quarterly TDS deposits), Part B (TDS summary), and the new Part C (detailed salary computation annexures)—a structured upgrade over the old two-part Form 16.
• Wider scope: Form 130 covers not just salaried employees but also pensioners and specified senior citizens receiving interest income under Section 395.
• TRACES-only generation: No offline Form 130 is legally valid. All quarterly TDS returns must be filed and processed before Form 130 can be generated for any employee.
• Annual deadline is June 15, 2027 for Tax Year 2026-27. Late issuance attracts ₹100 per day per employee in penalty. File the Q4 TDS return by May 31, 2027 to ensure a comfortable window.

How corpus Helps

corpus's payroll and TDS compliance module is built for the Income Tax Act, 2025. Salary TDS is computed under Section 392, Part C annexure data is generated directly from the salary processing engine, and the quarterly return files are ready for TRACES upload without manual reformatting. PAN–Aadhaar mismatch alerts flag non-compliant employee records before each payroll run, so inflated deductions never reach employees' payslips.

For CA firms managing payroll for multiple employer clients, corpus consolidates the Form 130 generation workflow across all clients in one dashboard—eliminating the spreadsheet juggling that typically consumes June every year. Set Q4 return filing as a May reminder, trigger the TRACES bulk download, and issue Form 130 to every employee well before June 15.

The deductions for Tax Year 2026-27 are happening right now, in August 2026. Starting the compliance setup today means your clients arrive at June 2027 ready—not scrambling.