Income Tax Deduction for Employees: Key Guidelines for FY 2025-26
The Central Pollution Control Board (CPCB), Delhi has issued a fresh circular outlining important rules on Income Tax Deduction from salaries for the financial year 2025-26. These rules apply to all employees drawing taxable salary, and are based on the provisions of Section 192 of the Income Tax Act, 1961.
This article explains the updated tax rules, the requirement of submitting Form 12BB, timelines for submitting savings proof, and the responsibilities of employees and DDOs for the upcoming financial year.
1. Mandatory Income Tax Deduction Under Section 192
As per the Finance Act, 2025, income tax must be deducted at source from salary income during FY 2025-26. Employers are required to calculate the estimated taxable salary and deduct TDS each month accordingly.
Tax deduction becomes applicable only if an employee’s estimated income exceeds ₹2,50,000 or ₹3,00,000, depending on age.
2. Old vs New Tax Regime: Choice Available
The circular reiterates that employees may either opt for the Old Tax Regime or the New Tax Regime (115BAC).
Old Tax Regime
- Higher tax rates
- Allows exemptions and deductions (80C, 80D, HRA, etc.)
New Tax Regime
- Lower tax rates
- No deductions or exemptions
- Available to all employees and HUFs for FY 2025-26
Employees must inform their employer of their preferred regime to ensure correct income tax deduction from monthly salary.
3. Submission of Form 12BB for Savings and Other Income
Employees wishing to claim deductions under the Old Tax Regime must submit Form 12BB, declaring:
- Deductions (80C, 80D, etc.)
- Interest on home loan
- Rent/HRA claims
- Other eligible tax-saving investments
The form must be signed and submitted along with relevant self-attested documents.
4. Rules for Reporting Other Income
As per Section 192(2B), employees can declare income from other heads—except losses, except loss from house property.
DDO can consider only:
- Loss from house property
DDO cannot consider:
- Losses from any other head
- TDS on other income to reduce salary TDS
Such adjustments must be done directly while filing the Income Tax Return.
5. PAN-Aadhaar Linking is Mandatory
If PAN is not linked with Aadhaar or not furnished, the DDO must deduct TDS at:
- 20%, or
- The applicable rate
whichever is higher. No deductions or rebates are allowed in such cases.
6. Certificate for Lower or Nil Deduction (Form 13)
Employees who have received a Lower/Nil TDS Certificate under Section 197 must submit it to the DDO.
Tax will then be deducted at the rate mentioned in the certificate.
The certificate’s Unique Identification Number must be reported in Form 24Q.
7. Issuance of Form 16
The circular reiterates the instructions from CBDT Circular 04/2013:
- Part A of Form 16 must be generated and downloaded from the TRACES portal
- It must carry a unique TDS certificate number
- Part B is prepared manually by the employer and issued with Part A
8. Important Dates for Submitting Form 12BB & Proofs
Employees must strictly follow the deadlines:
| Requirement | Deadline |
|---|---|
| Submission of Form 12BB | 16 December 2025 |
| Submission of Annexure I & II + Savings Proof | 16 December 2025 |
| Proof of savings made after 16 December | On or before 10 January 2026 |
| Savings after 10 January | To be claimed directly in Income Tax Return |
All documents must be properly numbered and arranged serially.
9. Availability of Forms
Soft copies of:
- This circular
- Form 12BB
are available in the Employees’ Corner and on the CPCB e-office portal.
Employees opting for the old tax regime are advised to submit Form 12BB early to avoid last-minute difficulties.