What Is Form 130?
Form 130 (formerly Form 16) is the annual certificate an Indian employer must issue to every employee from whose salary it has deducted tax, showing the salary paid and the tax deducted at source (TDS) during the financial year. It is the salary-side counterpart to Form 16A, which covers TDS on everything other than salary. For a foreign company's Indian subsidiary, branch, or liaison office, Form 130 is not optional paperwork — it is the document each employee needs to file their own income tax return and claim credit for the tax already withheld from their pay.
The certificate takes its name from the Income-tax Act, 2025, which came into force on 1 April 2026. Salary paid and tax deducted during the financial year 2025-26 or earlier remains governed by the Income-tax Act, 1961, under the savings clause at section 536(2)(c) — so the certificate for that period is still issued, and still labelled, as Form 16. Form 130 is the certificate an employer will issue for salary paid during financial year 2026-27 onward.
Legal Basis
TDS on Salary — Section 392 of the Income-tax Act, 2025 (Section 192 of the Income-tax Act, 1961)
Under section 392 of the Income-tax Act, 2025, any person responsible for paying income chargeable under the head "Salaries" must deduct income-tax on the amount payable, at the time of payment, at the average rate of income-tax computed on the rates in force for the tax year, applied to the employee's estimated salary income for that year. This is a monthly, running deduction based on an annual estimate — not a flat percentage — which is why an employee's monthly TDS can change through the year: section 392(4) requires the employer to take into account particulars the employee furnishes, including salary from another employer, relief under section 157, a loss under the head “Income from house property”, income under any other head, and tax already deducted or collected in the same tax year.
Obligation to Issue the Certificate — Section 395(4)(a) (Section 203 of the 1961 Act)
Section 395(4)(a) of the Income-tax Act, 2025 requires every person who deducts tax to issue a certificate to the deductee specifying the amount of tax deducted, the rate at which it was deducted, and any other particulars as may be prescribed, within the period prescribed by the rules made under the Act. For salary TDS deducted under section 392, this certificate is Form 130.
Tax Deduction Account Number — Section 397(1) (Section 203A of the 1961 Act)
Section 397(1) of the Income-tax Act, 2025 requires every person who deducts tax to obtain a Tax Deduction Account Number (TAN) and to quote it on every certificate issued under this Chapter. An employer's TAN appears on every Form 130 it issues, alongside the employer's name, address, and the employee's Permanent Account Number (PAN).
How Form 130 Fits Into the Payroll Cycle
Form 130 is the last step in a three-part annual cycle for an employer's salary TDS compliance:
- Monthly deduction. The employer deducts TDS from each salary payment under section 392(1), based on the employee's estimated annual salary income and declared investments or other income.
- Quarterly return. The employer reports the deductions to the Income Tax Department each quarter in Form 138 (formerly Form 24Q) — the quarterly statement of salary TDS required under section 397(3)(b) of the Income-tax Act, 2025.
- Annual certificate. After the financial year closes, the employer issues Form 130 to each employee, consolidating the year's salary, deductions, and tax deposited into a single certificate the employee can use when filing their income tax return.
The employee's income tax return is pre-filled from the same underlying deduction data through Form 168 (formerly Form 26AS) and the Annual Information Statement (AIS). Employees and their employers should reconcile the figures on Form 130 against Form 168 before the return is filed — a mismatch between the two is one of the most common triggers for a tax department query on salaried employees.
When Form 130 Must Be Issued
Section 395(4)(a) of the Income-tax Act, 2025 fixes no date of its own. It requires the certificate to be issued "within such period as may be prescribed" — the period comes from the rules made under the Act, not from the section. Under the outgoing 1961 Act regime the salary certificate, then Form 16, was due by 15 June of the financial year immediately following the year in which the salary was paid and the tax deducted, so 15 June 2026 is the date for FY 2025-26. For the first Form 130, covering salary paid in FY 2026-27, an employer should take the period from the Income-tax Rules, 2026 rather than carry the old date across: the Income Tax Department has published no form page or user manual for Form 130 stating a date. Form 16A, the certificate for non-salary TDS, runs on its own separate cycle.
Why It Matters for Foreign Companies and Investors
Any foreign company operating in India through a subsidiary, branch office, or liaison office that employs staff on its own payroll — Indian nationals or expatriates — takes on the same Form 130 obligation as any Indian employer. This includes cases where an expatriate remains formally employed abroad but is taxed in India on services rendered here under a shadow payroll arrangement: if Indian TDS is deducted on the India-attributable portion of the expatriate's salary under section 392, the Indian entity operating the shadow payroll must issue Form 130 for that deduction.
Getting this wrong has a direct cost. Under section 465(2)(g) of the Income-tax Act, 2025, failing to furnish a certificate required under section 395(4) attracts a penalty of ₹500 for every day the default continues, capped under section 465(3)(b) at the amount of tax deductible for that certificate. Employees who don't receive a correct, timely Form 130 also can't cleanly reconcile their own return, which creates friction with staff a foreign employer is trying to retain.
Practical Example
Meridian India Pvt Ltd, a wholly-owned subsidiary of a US technology company, employs 40 staff in Bengaluru on its own payroll for financial year 2026-27. Each month, Meridian deducts TDS from salaries under section 392(1), based on each employee's estimated annual salary and declared deductions. Every quarter, Meridian files Form 138 reporting these deductions. After 31 March 2027, Meridian consolidates each employee's full-year salary, deductions, and TDS into a Form 130, and issues it to every employee within the period prescribed by the Income-tax Rules, 2026. Employees use their Form 130, cross-checked against their Form 168/AIS entries, to file their income tax returns for the year.
Common Mistakes
- Confusing Form 130 with Form 16A. Form 130 is salary-only. Form 16A (non-salary TDS — interest, rent, professional fees, dividends) has not been confirmed as renumbered under the Income-tax Act, 2025 by any Income Tax Department document, so it should still be referred to as Form 16A rather than guessed at.
- Using the new form number for an old tax year. Salary paid during financial year 2025-26 or earlier is still certified on Form 16, issued under the Income-tax Act, 1961 — not Form 130.
- Skipping the quarterly Form 138 return. The annual Form 130 draws on the same figures reported quarterly in Form 138; errors carried through from a quarter's filing surface again in the annual certificate.
- Not reconciling with Form 168/AIS before issuing. A Form 130 that doesn't match the deductor's own TDS deposit records, as reflected in Form 168, causes the employee's return to be flagged.
Frequently Asked Questions
Is Form 130 the same as Form 16A?
No. Form 130 (formerly Form 16) is issued only for tax deducted from salary under section 392 of the Income-tax Act, 2025. Form 16A covers TDS on non-salary payments — interest, rent, professional fees, dividends — and its renumbering under the new Act has not been confirmed, so it continues to be called Form 16A.
Who is responsible for issuing Form 130?
Any person responsible for paying salary and deducting tax on it under section 392 of the Income-tax Act, 2025 — in practice, the employer. This includes an Indian subsidiary, branch office, or liaison office of a foreign company that runs its own payroll, and extends to shadow payroll arrangements where an Indian entity deducts tax on an expatriate's India-attributable salary.
When must Form 130 be issued?
Section 395(4)(a) of the Income-tax Act, 2025 requires the certificate within the period prescribed by the rules made under the Act; the section names no date itself. Under the 1961 Act the salary certificate, Form 130 (formerly Form 16), was due by 15 June following the close of the financial year. For salary paid in FY 2026-27 onward, the period prescribed under the Income-tax Rules, 2026 is what governs.
What happens if an employer issues Form 130 late or not at all?
Section 465(2)(g) of the Income-tax Act, 2025 imposes a penalty of ₹500 for every day the failure continues, capped under section 465(3)(b) at the amount of tax deductible for that certificate.
Does a foreign company need to issue Form 130 for expatriates on shadow payroll?
Yes, if the Indian entity deducts TDS on the India-attributable portion of an expatriate's salary under section 392. The shadow payroll structure changes who bears the cost and how the calculation is done, but it does not remove the obligation to issue Form 130 for whatever tax the Indian entity has actually deducted.
See also: Form 16A, Tax Deduction at Source (TDS), and Shadow Payroll & Tax Equalization.
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