Salary and accumulated balance due to an employee
[Section-392 as per the Income Tax Act, 2025 (this Act) w.e.f. 1st April, 2026.]
Section 392(1) of Income Tax Act 2025
392(1) Any person responsible for paying any income chargeable under the head “Salaries” shall deduct income-tax on the amount payable and this deduction shall be made at the time of such payment at the average rate of income-tax computed on the basis of the rates in force for the tax year in which the payment is made, on the estimated income of the assessee under this head for such year.
Section 392(2) of Income Tax Act 2025
392(2)(a) Without prejudice to the provisions of sub-section (1), the person responsible for paying any income in the nature of a non-monetary perquisite chargeable to tax under section 17(2), may pay, at his option, tax on the whole or part of such income without making any deduction therefrom, at the time when such tax was deductible under sub-section (1);
392(2)(b) the tax under clause (a) shall be determined at the average rate as per sub-section (1), on the income chargeable under the head “Salaries” including the income referred to in the said clause, and shall be construed as a tax deductible at source from the income under the head “Salaries”, and be subject to the provisions of this Chapter.
Section 392(3) of Income Tax Act 2025
392(3) Any person, being an eligible start-up referred to in section 140, responsible for paying any income of the nature specified in section 17(1)(d) in any tax year, shall deduct or pay, tax on such income, on the basis of rates in force for the tax year in which the specified security or sweat equity share is allotted or transferred, within the time as specified for the payee in section 289(3).
Section 392(4) of Income Tax Act 2025
392(4)(a) The person responsible for paying under sub-section (1), shall take into account the following particulars furnished by the assessee, at his option, in such form and manner as prescribed, for the purpose of making deduction under the said sub-section and such particulars shall have an effect of increasing or decreasing the tax to be deducted:—
- (i) any income under the head “Salaries” due or received by the assessee, from any other employer or employers during the tax year;
- (ii) any relief allowable under section 157, where the assessee being a Government servant, or an employee in a company, co-operative society, local authority, university, institution, association or body is entitled for such relief;
- (iii) any loss under the head “Income from house property”;
- (iv) any income chargeable under any other head of income, [not being a loss under any such head other than the loss specified in sub-clause (iii)];
- (v) any tax deducted or collected at source under this Chapter;
392(4)(b) the tax deductible from income under the head “Salaries” shall not be reduced in any case, except on account of––
- (i) loss under the head “Income from house property”; and
- (ii) the tax deducted and collected as per other provisions of this Chapter.
Section 392(5) of Income Tax Act 2025
392(5) The person responsible for paying any income chargeable under the head “Salaries” to the assessee—
- 392(5)(a) shall furnish a statement in such form and manner, as prescribed, with correct and complete particulars of perquisites or profits in lieu of salary paid, along with their value, to the assessee;
- 392(5)(b) shall, for the purposes of estimating income of the assessee or computing tax deductible under sub-section (1), obtain from the assessee the evidence or proof or particulars of prescribed claims (including claim for set off of loss) under the provisions of this Act in such form and manner, as prescribed; and;
- 392(5)(c) may, increase or reduce the amount to be deducted under this section for adjusting any excess or deficiency arising out of any previous deduction or failure to deduct during the tax year.
Section 392(6) of Income Tax Act 2025
392(6)(a) The trustees of a recognised provident fund, or any person authorised by the regulations of the fund to make payment of the accumulated balances due to employees shall, in cases where paragraph 9 of Part A of Schedule XI applies, at the time an accumulated balance due to an employee is paid, make therefrom the deduction provided in paragraph 10 of Part A of Schedule XI;
392(6)(b) Where any contribution made by an employer, including interest on such contributions, if any, in an approved superannuation fund is paid to the employee, tax on the amount so paid shall be deducted by the trustees of the fund to the extent provided in paragraph 7 of Part B of Schedule XI.
Section 392(7) of Income Tax Act 2025
- 392(7)(a) The trustees of the Employees’ ‘Provident Funds Scheme, 1952, made under section 5 of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952; or
- 392(7)(b) any person authorised under such scheme to make payment of accumulated balance due to employees,
shall at the time of payment of accumulated balance due to the employee participating in a recognised provident fund, deduct income-tax thereon at the rate of 10%, where the aggregate amount of such payment is fifty thousand rupees or more, and such accumulated balance is includible in his total income owing to the provisions of paragraph 8 of Part A of Schedule XI not being applicable.
FAQs on Section 392 of Income Tax Act 2025
What is the general rule for deduction of income tax from salary under Section 392(1)?
Any person responsible for paying income under the head “Salaries” must deduct income-tax at the time of payment at the average rate calculated on the basis of rates in force for the tax year, based on estimated salary income for that year.
Can an employer pay tax on non-monetary perquisites without deducting it from the employee’s salary?
Yes, under Section 392(2)(a), the employer may opt to pay tax on the whole or part of non-monetary perquisites without deduction from the employee’s income.
At what rate is tax calculated when the employer pays tax on non-monetary perquisites?
The tax is calculated at the average rate as per Section 392(1), treating it as tax deductible under the head “Salaries”.
How is tax deduction handled for eligible start-ups issuing specified securities or sweat equity shares?
Under Section 392(3), such start-ups must deduct or pay tax on the income at the applicable rates for the year of allotment or transfer, within the time specified for the payee in Section 289(3).
What information can an employee submit to the employer to adjust the TDS on salary?
Under Section 392(4)(a), the employee can furnish details about:
(i) salary received from other employers,
(ii) relief under Section 157,
(iii) loss under “Income from house property”,
(iv) other income (not being a loss except that under clause iii), and
(v) any tax already deducted or collected.
Are there any restrictions on reducing TDS from salary based on the information provided?
Yes, per Section 392(4)(b), TDS cannot be reduced except for loss under “Income from house property” and tax already deducted or collected under other provisions.
What responsibilities does the employer have under Section 392(5) while deducting tax on salary?
The employer must:
(a) furnish a statement of perquisites and their values to the employee,
(b) obtain proof or particulars of claims for deductions or losses in the prescribed form,
(c) adjust for any excess or shortfall in earlier TDS during the tax year.
Who is responsible for tax deduction when accumulated balance from a recognised provident fund is paid?
As per Section 392(6)(a), the trustees or authorized persons of the recognised provident fund must deduct tax as per paragraph 10 of Part A of Schedule XI if paragraph 9 of that Schedule applies.
Is tax deducted when superannuation fund contributions are paid out to employees?
Yes, under Section 392(6)(b), tax must be deducted on employer contributions and interest when paid to the employee, as per paragraph 7 of Part B of Schedule XI.
What is the TDS rate on payment from the Employees’ Provident Funds Scheme, 1952, if exempt conditions are not met?
Under Section 392(7), tax is deducted at 10% on payment of accumulated balance of ₹50,000 or more if paragraph 8 of Part A of Schedule XI does not apply.
When is the 10% TDS applicable on recognised provident fund payments?
It applies when the accumulated balance is includible in total income due to non-fulfillment of exemption conditions in paragraph 8 of Part A of Schedule XI and the payment is ₹50,000 or more.
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