Form 16 under the Income-tax Act 2025 and the new regime

Form 16 has a new home in the Act

Form 16 — the annual TDS certificate every salaried employee needs for their own return — is the same document, but its statutory anchor has moved. Under the Income-tax Act 2025, the certificate is issued under §130, replacing the old §192 machinery from the 1961 Act. The quarterly return that feeds it, Form 24Q, now sits under §138. The salary-TDS charging provision itself has shifted into the Act’s §392-series.

None of this changes what appears on the certificate. It changes where the underlying statutory authority sits, which matters if your payroll or compliance vendor references section numbers directly in filings, disclosures, or internal documentation.

The new regime is now the default

The bigger practical change for Form 16 this cycle is not the renumbering. It is that the new tax regime — successor to the old §115BAC, now at §202 — is the default regime for every employee. An employee must actively opt into the old regime if they want it.

This reverses the usual assumption payroll teams have carried for years. Earlier, the old regime with its full set of exemptions and deductions was the baseline, and the new regime was the opt-in. Employees who do nothing this cycle are placed in the new regime automatically.

Two consequences follow directly for Form 16 preparation:

• The standard deduction of ₹75,000 under §19, Sl. 2 applies regardless of regime, so it should appear correctly either way.
• Exemptions that depend on the old regime need explicit confirmation before they are populated on a new-regime employee’s certificate. HRA is the one genuinely open item here.

Getting this wrong in either direction creates a real problem. Overstate an exemption on a new-regime employee’s Form 16, and their own return will not match. Understate it, and an old-regime employee loses a legitimate deduction until it is corrected.

What flows into Form 16 from the Labour Codes

Form 16 is a summary document — it reports what was actually withheld and paid. But the underlying numbers, especially for exempt components like gratuity and leave encashment, are shaped by the Labour Codes’ wages definition. See our Income-tax Act 2025 crosswalk for the full mapping.

The practical point for year-end is this. Gratuity or leave-encashment payouts may be computed on a deemed-wages base, under the Code on Wages’ 50% rule. If so, that higher base flows through to the exemption calculation under §19. It can push income into the taxable band if it crosses the ceiling. The ceiling is ₹20 lakh for gratuity under §19 Table Sl. 5–6, and ₹25 lakh for leave encashment under §19 Sl. 13–14. Both ceilings are unchanged from the old Act. Form 16 needs to reflect the correct exempt and taxable split, not just the gross payout figure.

Illustrative: an employee’s gratuity payout, recomputed on the deemed-wages base, rises from roughly ₹18 lakh to ₹23 lakh. This crosses the ₹20 lakh exemption ceiling for the first time. The excess ₹3 lakh becomes taxable salary income that Form 16 must show, where previously the full amount was exempt. This is illustrative only; the actual crossing point depends on each employee’s specific wages structure.

Timing: §29 and the certificate

Form 16 issuance assumes the underlying tax was actually deposited on time through the year. §29 of the 2025 Act carries forward the rule that a late-deposited employee PF or ESI contribution is disallowed to the employer. This is a separate issue from TDS timing. But it surfaces at the same year-end review, since both are compliance-calendar items.

Keep the TDS deposit calendar and the PF/ESI remittance calendar as two separate tracked items, even though they get reviewed together at year-end. Conflating them is a common source of last-minute Form 16 corrections.

A year-end checklist

• Confirm which employees are on the new regime by default versus those who filed an old-regime election, and check that Form 16 templates branch correctly between the two.
• Do not populate HRA exemption for new-regime employees until the open regime-availability question is confirmed with your tax advisor.
• Re-check gratuity and leave-encashment exempt amounts against the deemed-wages base where the 50% rule applies, not the pre-Code figures.
• Verify Form 24Q filings reference the correct current section numbers if your vendor’s templates were not updated for the 2025 Act.
• Cross-check the PF/ESI remittance calendar separately from the TDS deposit calendar — both affect year-end, but on different rules.

This is a smaller-scope companion to the full Income-tax Act 2025 crosswalk. Read that guide first if you need the complete section-by-section mapping. See our shadow payroll guide if any of your Form 16 population includes International Workers.

General guidance, not legal advice. Confirm the open items — especially new-regime HRA treatment — with your tax advisor before finalising this year’s certificates.