Form 130 Replaces Form 16: Payroll Changes Under Income Tax Act 2025

As of 3 October 2026. The Income-tax Act 2025 replaced the 1961 Act from 1 April 2026, and the renumbered forms apply to tax year 2026-27 onwards, while returns and certificates for FY 2025-26 still use the old forms.

Key fact	Detail
Effective date	1 April 2026 (tax year 2026-27 onwards)
What changes	Section numbers, form numbers and the "tax year" concept; rates and slabs still come from the annual Finance Act
Salary certificate	Form 16 becomes Form 130
Form 140	Quarterly TDS return for non-salary payments to residents, replacing Form 26Q
Who it applies to	Every employer and deductor, and every salaried employee
Official source	Income Tax Department (incometax.gov.in)

This guide is for employers, payroll managers, accountants and HR software owners in India. Many people are searching for "Form 140" expecting the new Form 16. After reading this you will know exactly which new form replaces which old one, what changes in salary TDS under Section 392, and the updates your payroll system needs before the first certificates under the new Act are due in 2027.

Does Form 140 replace Form 16

No. Form 16, the salary TDS certificate, is replaced by Form 130. Form 140 replaces Form 26Q, the quarterly TDS return for payments other than salary, such as contractor, rent, commission and professional fees.

The confusion is understandable. The Income-tax Rules 2026 renumbered several hundred forms at once, and early news coverage mixed up the numbers. If your team has started referring to the employee salary certificate as "Form 140", correct it now before it gets into employee communication or software labels.

Income Tax Act 2025: old forms and their new numbers

The forms most used in payroll and TDS have new numbers under the Income-tax Rules 2026: Form 16 is Form 130, Form 16A is Form 131, Form 12BB is Form 124, Form 24Q is Form 138, Form 26Q is Form 140 and Form 26AS is Form 168.

Old form (1961 Act)	New form (2025 Act)	What it is	Who uses it
Form 16	Form 130	Salary TDS certificate	Employer to employee
Form 16A	Form 131	Non-salary TDS certificate	Deductor to payee
Form 12BB	Form 124	Employee declaration of investments and claims	Employee to employer
Form 12BA	Form 125	Statement of perquisites	Employer to employee
Form 24Q	Form 138	Quarterly TDS return on salary	Employer to department
Form 26Q	Form 140	Quarterly TDS return on non-salary payments to residents	Deductor to department
Form 27Q	Form 144	Quarterly TDS return on payments to non-residents	Deductor to department
Form 26AS	Form 168	Annual tax credit statement	Taxpayer view
Form 15G and 15H	Form 121	Declaration for no deduction	Payee to deductor

The Income Tax Department's own FAQs on forms under the Income-tax Rules, 2026 confirm that Form 130 replaces Form 16 and is issued as a certificate under Section 395(4)(b) for tax deducted on salary under Section 392. The remaining rows follow the published rules as summarised by tax publications; confirm each form on the department's site before you print templates.

What is Section 392 for salary TDS

Section 392 of the Income-tax Act 2025 is the provision for deducting tax at source from salary, taking over the role of Section 192 of the old Act. Employers estimate the employee's annual tax and deduct it monthly, as before.

The wider TDS chapter has been consolidated. Most deductions on payments to residents, such as contractors, rent, commission and professional fees, now sit in Section 393, which absorbs many separate sections of the old Act. Payments to non-residents have their own consolidated provisions. For payroll, the practical change is the section reference on every report, challan mapping and certificate, not the method of calculation.

Rates, slabs and most thresholds still come from the annual Finance Act. For tax year 2026-27, the new regime slabs were reported to be unchanged from the previous year. Check the current slab table on the Income Tax Department portal before finalising payroll projections.

What Form 140 means for your accounts team

Form 140 is the quarterly statement your accounts team files for TDS deducted on payments to resident vendors, such as contractors, landlords, consultants and commission agents. It replaces Form 26Q, and the deductee receives a Form 131 certificate instead of Form 16A.

For a typical Gujarat manufacturer, Form 140 covers job-work contractors, transporters, the CA's professional fees, factory rent and sales commission. Your accounting software must tag each vendor payment with the new section and payment code so the quarterly file builds itself. If vendor ledgers still carry old section codes from the 1961 Act, map them once to the new codes and keep the old code as history.

• Vendor master: PAN, resident status, nature of payment, new section code.
• Payment entry: TDS deducted, rate applied, challan reference.
• Quarter end: Form 140 file, then Form 131 certificates to vendors.

Keeping salary (Form 138) and non-salary (Form 140) data in systems that share one challan register avoids the most common mismatch we see: one challan used twice, or not at all.

What is a "tax year" and why payroll must change labels

The 2025 Act replaces the "previous year" and "assessment year" pair with a single "tax year". Income earned from 1 April 2026 to 31 March 2027 is tax year 2026-27, so payroll reports should stop printing AY 2027-28 on new documents.

This sounds cosmetic, but it touches every report header, every certificate and every employee query. During the transition you will run both systems at once: FY 2025-26 certificates issued in June 2026 used the old Act and old forms, while tax year 2026-27 certificates, due in 2027, use the new forms. Payroll software needs to pick the right form and labels based on the year, not a global setting.

What payroll software must change for the new Income Tax Act

Payroll software must add the new form templates, switch section references from 192 to 392, adopt the tax year label, and keep old forms working for earlier years. It should also capture employee declarations in the Form 124 structure.

1. Form templates by year: Form 130 and Form 125 for tax year 2026-27 onward, Form 16 and 12BA for earlier years.
2. Section mapping: salary TDS under Section 392, non-salary TDS under the new sections, with a mapping table so historical reports still show old sections.
3. Return generation: Form 138 for salary and Form 140 for non-salary, following the file formats the department publishes.
4. Employee declarations: Form 124 fields for rent, home loan interest, deductions and previous employer income.
5. Labels: "tax year" in place of "assessment year" on new documents.
6. Audit trail: which form version and which rule set produced each document.

What we have seen updating payroll systems in Gujarat

On HRMS and payroll projects for Rajkot and Ahmedabad employers this year, the hardest part of the new Act was not the tax logic, which barely changed, but the dozens of places where form numbers and section codes were hard-coded into reports.

• A forging company in Rajkot had "Form 16" and "Section 192" typed into eleven report templates. Moving those into a year-based configuration took two days and will make future changes trivial.
• A multi-branch service firm in Ahmedabad had its accounts team calling the non-salary return "Form 140" and its HR team calling the salary certificate the same thing. A one-page internal mapping sheet ended the confusion.
• A school trust with 200 staff collected investment declarations on paper. Switching to an online Form 124 workflow cut follow-up calls in the last quarter.

How employers should plan the rest of tax year 2026-27

Employers should update declaration collection to Form 124 now, test Form 138 quarterly returns for the October to December quarter, and prepare Form 130 templates well before the first certificates fall due in 2027.

When	Payroll task
October to December 2026	Collect proofs in Form 124 structure; verify Section 392 references in reports
Each quarter	File salary TDS in Form 138 and non-salary TDS in Form 140, per published due dates
January to March 2027	Final tax computation, last-quarter proof verification
By 15 June 2027	Issue Form 130 certificates for tax year 2026-27, the due date stated by the Income Tax Department

Check due dates for returns and certificates on the department portal, since they are set in the rules and can be extended by circular.

How to decide: patch your current payroll or replace it

Patch your payroll if form names and sections are configurable and your vendor or developer responds quickly. Replace or rebuild it if form numbers are hard-coded, old and new years cannot coexist, or TDS returns are prepared outside the system.

The new Act is a once-in-decades renumbering, and it arrived in the same year as the labour codes. Many employers are using this moment to move salary, attendance, TDS and statutory reports into one system. If you are reviewing salary structures for the 50% wage rule anyway, it is efficient to do both at once.

Related reading and next step

See our HRMS and payroll software, the payroll compliance checklist for India, our guide to the 50% wage rule, and accounting and GST software for non-salary TDS. For a fixed quote to update your payroll for Form 130, Form 138 and Form 124, contact us through the contact page or WhatsApp +91 7265004040.