TDS on Salary: Form 16, Form 24Q & TRACES Filing Guide 2026

Why TDS on Salary Demands More Attention in 2026

Every employer who pays salary above the basic exemption limit must deduct Tax Deducted at Source (TDS) under Section 192 of the Income Tax Act, 1961. Yet salary TDS remains one of the most common sources of demand notices, short deductions, and TRACES mismatches — especially for small businesses and CA-managed clients.

Getting it right means understanding the full compliance chain: estimating tax at the start of the year, deducting correctly each month, filing Form 24Q quarterly, and issuing Form 16 by 15 June of the assessment year. This guide walks through each step with practical examples tailored for Indian employers and CA firms.

Understanding TDS Under Section 192

Unlike other TDS sections that apply flat rates, Section 192 requires the employer to estimate the employee's total income for the financial year and deduct tax at the applicable slab rate on a monthly basis.

Key Parameters for FY 2025-26

• New Tax Regime (Default): The new regime is the default for FY 2025-26. Employees must submit Form 10-IEA in writing to opt out and continue with the old regime.
• Standard Deduction: ₹75,000 under the new regime (enhanced in Union Budget 2024); ₹50,000 under the old regime.
• Basic Exemption Limit: ₹3,00,000 under the new regime; ₹2,50,000 under the old regime.
• Health and Education Cess: 4% on income tax — always factor this into the monthly TDS calculation.

Worked Example: An employee draws a gross salary of ₹9,00,000 per annum. Under the new regime:

• Less standard deduction: ₹75,000
• Taxable income: ₹8,25,000
• Approximate tax on ₹8,25,000 (new slabs): ₹45,000
• Add 4% cess: ₹1,800
• Total annual TDS: ₹46,800 → Monthly TDS: ₹3,900

Collect Form 12BB from every employee at the start of April. This investment declaration captures HRA claims, LTA, home loan interest (Section 24b), and Chapter VI-A investments (80C, 80D). Re-verify declarations in October when actual investment figures become clearer, and adjust deductions for the remaining months.

Filing Form 24Q: Quarterly TDS Return for Salaries

Form 24Q is the quarterly TDS return applicable solely to salary payments. It contains two annexures:

• Annexure I: Deductee-wise salary and TDS details — filed for all four quarters.
• Annexure II: Filed only with the Q4 return — captures the complete year's salary computation including exemptions (HRA, LTA), all deductions, and final tax liability for each employee.

Due Dates for FY 2025-26

Five Common Errors That Trigger Demand Notices

1. 1Wrong employee PAN — causes a TRACES mismatch, blocks Form 16 download, and prevents the employee from claiming credit in 26AS.
2. 2Challan data error — incorrect BSR code, challan serial number, or date of deposit breaks the TDS credit chain entirely.
3. 3Short deduction — tax deducted is less than actual liability; attracts interest under Section 201(1A) at 1.5% per month from date of deduction to date of payment.
4. 4Late filing — Section 234E levies ₹200 per day until the return is filed, capped at the total TDS for the quarter.
5. 5Incomplete Annexure II in Q4 — missing exemptions or deductions in the Q4 return results in wrong Form 16 Part B and downstream ITR mismatches for employees.

Always validate the return file using the NSDL Return Preparation Utility (RPU) and File Validation Utility (FVU) before uploading to the TRACES portal.

Downloading Form 16 from TRACES

Form 16 is the annual TDS certificate that employers must issue to every salaried employee. It comes in two parts:

• Part A: System-generated by TRACES — shows TAN, PAN, quarter-wise TDS deducted and deposited. Mandatory to download from TRACES; a self-prepared Part A is not valid.
• Part B: Prepared by the employer — contains the full salary breakup, exempt allowances, Chapter VI-A deductions, and tax computation.

Step-by-Step: Downloading Form 16 Part A

1. 1Log in to traces.gov.in using TAN credentials.
2. 2Go to Downloads → Form 16.
3. 3Select the Financial Year and enter the employee PAN range (or a single PAN).
4. 4Submit the download request — TRACES typically processes it within 24 hours.
5. 5Open the downloaded ZIP file; the password is the employer's TAN in uppercase.
6. 6Digitally sign Part A using a valid DSC before issuing it to employees — unsigned Form 16 is not legally valid.

Statutory Deadline: Form 16 (both parts) must be issued to all employees by 15 June 2026 for FY 2025-26.

TDS on Perquisites: What Employers Often Miss

Salary TDS under Section 192 covers more than the monthly CTC cash component. The value of perquisites under Rule 3 of the Income Tax Rules must also be included in the taxable salary:

• Company car with driver: ₹1,800–₹2,400 per month (based on engine capacity) where the employer bears fuel and maintenance costs.
• Rent-free accommodation: 15% of salary in metro cities, 10% in non-metro cities, or actual rent paid by the employer — whichever is lower.
• ESOPs: Taxed as perquisites on the date of exercise; value = (Fair Market Value on exercise date) minus (exercise price paid by employee).
• Interest-free or concessional loans: The difference between the SBI prime lending rate and the actual interest rate charged to the employee is treated as a perquisite.

Include all perquisite values in Form 12BA (perquisites statement) and reflect them accurately in Form 16 Part B. Omitting perquisites is a common audit trigger during salary TDS assessments.

How corpus Helps

Manually tracking monthly TDS computations across tens of employees, reconciling OLTAS challan deposits, and building error-free Form 24Q returns consumes enormous time — especially when managing multiple client payrolls. corpus automates the entire workflow:

• Regime-aware TDS engine computes monthly deductions per employee based on Form 12BB inputs, mid-year regime switches, and perquisite values — no spreadsheets.
• Challan reconciliation dashboard matches every OLTAS deposit to employee-wise TDS liability and flags unmatched challans before filing.
• Form 24Q export generates FVU-validated Annexure I and Annexure II files ready for direct TRACES upload, for all quarters.
• TRACES data sync pulls 26AS and AIS data to surface mismatches before your client's employee files their ITR — catching problems early rather than post-return.
• Form 16 Part B generator auto-populates salary breakup, exemptions, and deductions from the payroll register, cutting Part B preparation from days to minutes.

Whether you manage payroll TDS for 5 employees or 500 across multiple clients, corpus keeps your firm accurate and deadline-compliant from a single dashboard.

Conclusion

TDS on salary is a year-round discipline — from collecting Form 12BB in April, to adjusting deductions mid-year, to filing accurate Form 24Q returns each quarter, and finally issuing Form 16 by 15 June. Errors anywhere in this chain create cascading problems: employee 26AS mismatches, ITR defects, Section 234E penalties, and Section 201 interest demands.

Build a structured monthly TDS calendar, validate every Form 24Q with FVU before uploading, and download Form 16 Part A from TRACES well before the deadline. A proactive approach today eliminates costly corrections during the ITR filing season.

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