Section 392 (Act of 2025)

Section 392 (Act of 2025) — the law in short

What the courts have decided on section 392 (Act of 2025), in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• ITC Ltd v CIT (TDS) Supreme CourtHelps taxpayer
  Our restaurant and banquet bills carry a tip that the customer adds on the card. The money lands in our bank account and we hand it to the staff with their wages. The department says that is salary we should have deducted on. Is it?
  No. The Supreme Court held that a tip is not salary at all, and that the route it travels — cash into the waiter's hand or a card entry through the employer's bank account — makes no difference. Section 15(b) taxes what is paid or allowed by or on behalf of an employer, and the word employer presupposes a contract of employment; the employee has no vested right to claim a tip from his employer, and the amount has no reference to his contract of employment. The employer receives the money in a fiduciary capacity as trustee and is only a conduit between customer and staff. The tip is the employee's income from other sources under section 56(1). Section 192 is therefore not attracted, the employer is not an assessee in default, and no interest under section 201(1A) arises.
• Ram Pershad v CIT Supreme CourtHelps department
  I am the managing director of my own company. I draw a monthly amount, a car allowance and a percentage of gross profits. Is the percentage salary, or can I show it as my own business income?
  On an agreement of this kind it is salary. The Supreme Court held that ten per cent of gross profits payable to a managing director under his appointment agreement was chargeable under section 7 of the 1922 Act as salary, not under section 10 as business income. There is no single test. A servant acts under the direct control and supervision of his master and an agent does not, but that is only a rough and ready test, and the answer turns on the nature of the business and the nature of the duties. A managing director has a dual capacity - director and employee - and which he is depends on the articles of association and the terms of his employment. Here the company itself carried on the business, he could be dismissed if his work was unsatisfactory, and he exercised his powers within the limits the articles set and subject to the control of the board whose decisions he carried out.
• Pr. CIT (TDS) v National Health and Education Society — hospital consultants' fees fall under s.194J, not s.192 High CourtHelps taxpayer
  The TDS officer says our consultant doctors are really employees, that their fees are salary, and that we should have deducted under s.192 instead of s.194J. Is he right?
  Not on these facts. The hospital engaged Hospital Based Consultants and deducted under s.194J. The Assessing Officer held they were employees, that s.192 applied, and passed orders under s.201 treating the hospital as in default; the Commissioner (Appeals) and the Tribunal went against him on that point and the Revenue appealed under s.260A. The Bombay High Court held the question squarely covered by its own earlier Division Bench decision in Commissioner of Income-tax (TDS), Pune v Grant Medical Foundation (Ruby Hall Clinic), where the same Court had held that no relationship of employer and employee existed between a hospital and its consultant doctors and had answered the question in favour of the assessee. No substantial question of law arose, and all six appeals were dismissed with no order as to costs. Questions on s.194C versus s.194J for outsourced services and on drug handling charges were held to turn on findings of fact, and a question on the time limit for orders under s.201(1) was left open as academic.
• Statutory position — s.192: the employer deducts at the average rate on his own estimate of the year's salary, and the declarations exist to correct the estimate CBDT Circulars & InstructionsCuts both ways
  I run payroll. Section 192 has no threshold and no percentage in it like every other TDS section does — so how much am I supposed to deduct, and which of my employee's declarations am I actually obliged to act on?
  Section 192 does not work like the rest of Chapter XVII-B: there is no threshold below which you need not deduct and no flat percentage to apply. You deduct, at the time of payment, "at the average rate of income-tax computed on the basis of the rates in force for the financial year in which the payment is made, on the estimated income of the assessee under this head for that financial year" — that is, you build the employee's whole year's salary, work out the tax on it at the slab rates, divide that tax by that salary, and apply the resulting rate to each payment. Everything else in the section exists to make that estimate accurate: sub-section (2) lets the employee bring in salary from another employer in Form 12B, (2A) lets him bring in relief under section 89 in Form 10E, (2B) lets him bring in other income, other tax deducted or collected and a house property loss in Form 12BAA, (2D) obliges you to collect evidence of his claims in Form 12BB, and (2C) obliges you to give him back a statement of his perquisites in Form 12BA. Sub-sections (1A) and (1B) let you choose to pay the tax on a non-monetary perquisite yourself instead of deducting it, and section 115BAC(1A) is the default regime from assessment year 2024-25, so your estimate is made under it unless the employee tells you otherwise. This is the section as it stood after Act No. 15 of 2024 with effect from 1 October 2024; it governs salary paid up to 31 March 2026, after which section 392 of the Income-tax Act, 2025 takes over.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.