As India prepares to move from the long-standing Income-tax Act, 1961, to the newly introduced Income Tax Act, 2025, from April 1, 2026, many salaried employees are wondering what this shift actually means for their monthly paychecks.
One of the most immediate and practical areas of impact is TDS (Tax Deducted at Source) on salary, something that directly affects take-home pay.
The income tax department has released a set of FAQs addressing how employers should handle TDS during this transition period.
Below are three important FAQs every employee should understand to avoid surprises in April 2026 and beyond:
Which law applies to the March vs April 2026 salary?
- Salary for March 2026, paid on 31 March 2026, will be governed by the Income Tax Act, 1961, since the payment was
- Salary for April 2026, paid on 30 April 2026, will be governed by the Income Tax Act, 2025, as the payment was made on or after 1 April 2026.
So, the date you receive your salary decides the applicable tax law, not the month you earned it.
“Under the TDS provisions relating to salary, tax is required to be deducted at the time of payment. Thus, TDS on salary shall be governed by different Acts, based on the date of payment of salary,” the tax department said.
How will employers handle TDS during the transition?
Employers must handle salary TDS as follows:
- For salary of FY 2025-26 (paid up to March 2026): TDS obligations shall be in accordance with Section 192 of the old Act
- For salary of Tax Year 2026-27 (paid from April 2026 onwards): TDS obligations shall be in accordance with Section 392(1) of the new Act
This means your TDS will be “reset” at the start of the new tax year, which could slightly change your monthly deductions.
“The employer must reset the TDS computation from 1st April, 2026 for the new tax year, considering projected income, deductions, and tax regime for TY 2026-27,” the tax department said in the FAQ.
Which law should your investment declaration follow?
For Tax Year 2026–27, your investment declaration must follow the new law (Income Tax Act, 2025). Older sections like 80C will be replaced with new section references and schedules
“The investment declaration for Tax Year 2026-27 should reference the provisions of the Income Tax Act, 2025. For instance, deductions under Section 80C of the old Act will now be referenced as the Schedule XV read with section 123 of the Income Tax Act, 2025. The employer’s payroll system should be updated to reflect the new section numbering from April 2026,” the tax department said.
The timing of salary payments, not just the salary period, determines which law applies. This creates a short but crucial overlap where both the old and new tax laws come into play.