New Income-tax Act 2025: What Changes for Payroll (Form 16 Is Now Form 130)
The Income-tax Act, 2025 replaced the six-decade-old Income-tax Act, 1961 on 1 April 2026. For employees the headline is reassuring - tax slabs and rates did not change. For payroll teams it's a different story: almost every form number and section reference you use for salary TDS has been renamed. With the quarterly TDS return for July-September due on 31 October, now is the moment to make sure your payroll is speaking the new language.
This is an explainer, not tax advice. Final form numbers and formats come from the notified Income-tax Rules and the e-filing portal, and the rollout may run old and new formats side by side for a while. Confirm specifics with your Chartered Accountant before filing.
"Tax Year" replaces Previous Year and Assessment Year
The 1961 Act made you earn income in a "previous year" and get assessed in an "assessment year" - a perennial source of confusion. The new Act replaces both with a single Tax Year. Salary earned from April 2026 to March 2027 belongs to Tax Year 2026-27, and that's the label that appears on certificates and returns.
The old-to-new mapping payroll teams need
| What it is | Under the 1961 Act | Under the 2025 Act |
|---|---|---|
| TDS on salary (section) | Section 192 | Section 392 |
| Annual TDS certificate to employees | Form 16 | Form 130 |
| Quarterly TDS return for salary | Form 24Q | Form 138 |
| Employee declaration for HRA, LTC, home-loan interest | Form 12BB | Form 124 |
| Standardised employee declaration (regime choice, previous-employer income, etc.) | - | Form 122 (new) |
Two of these matter most day to day: Form 138 is the quarterly return you file, and Form 130 is the certificate every employee receives at year-end. The new Form 122 also gives employees one standard place to declare their tax regime choice and income from a previous employer in the same Tax Year - information payroll previously had to chase informally.
Which Act applies to which payment?
The cut-over follows the earlier of payment or credit:
- March 2026 salary credited on 31 March falls under the old Act, even if it was paid out in early April.
- April 2026 salary onwards falls under the new Act.
- Advances, joining bonuses and full and final settlements credited or paid before 1 April 2026 stay under the old Act.
That's also why the certificate employees received in June 2026 (for FY 2025-26) was still a Form 16 - the first Form 130 arrives after Tax Year 2026-27 closes.
What employers need to update
- Section references. Change 192 to 392 in payroll configuration, payslip templates and any generated tax documents. Old section codes on new-year filings can fail validation.
- Quarterly returns. File Form 138 on the usual calendar - 31 July, 31 October, 31 January and 31 May - and keep depositing TDS by the 7th of the following month.
- Declaration templates. Collect Form 122 and Form 124 (in place of Form 12BB) before processing payroll, so TDS is computed on declared figures rather than estimates.
- Year-end certificates. Plan for Form 130 to employees by 15 June after the Tax Year ends.
- Your payroll software. Check that your vendor has updated forms, sections and labels for Tax Year 2026-27 - this is where most of the change lands.
What it means for employees
Mostly reassurance. The same slabs and the same regime choice apply, and take-home pay isn't affected by the renaming. Employees will notice new form names on their declarations and, next year, on their annual certificate - and a cleaner Form 122 for declaring regime choice and past-employer income when they switch jobs mid-year.
How HRDesk24 helps
HRDesk24 payroll collects employees' tax declarations in the portal, lets HR verify the amounts, and recalculates monthly TDS on a year-to-date basis - so a late declaration or a mid-year regime switch corrects the remaining months instead of leaving a lump at year-end. The salary and tax computation behind the year-end certificate is produced from the same records your payslips come from, so the numbers always reconcile.
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