200KB is more room than it sounds
By the standards of the limits most application portals enforce, 200KB is generous. A correctly encoded photograph at ordinary screen dimensions fits comfortably inside it with no visible loss at all, which is why 200KB is the usual cap for job portal uploads, forum avatars and content management systems rather than for government forms.
The interesting question at this budget is therefore not whether your image will fit, but how much resolution you get to keep while it does. A phone photograph straight from the camera is typically two to six megabytes, and the overwhelming majority of that is detail that disappears the instant the image is displayed at anything less than full size. Discarding it costs you nothing you will ever see.
Why your PNG is so much larger than a JPEG
PNG is lossless: it reconstructs every pixel exactly as it was. That is the right choice for screenshots, logos, diagrams and anything with flat areas of colour and hard edges, where it is both efficient and artifact-free. For photographs it is a poor fit, because photographic data has no repetition for a lossless algorithm to exploit, and file sizes balloon accordingly.
The output here is JPEG, which is why photographs frequently shrink by more than 95% while a screenshot may shrink far less or even look worse. If your source is a screenshot or a graphic with text and you are not bound to a size limit, keeping it as PNG is usually the better choice — convert to JPEG only when a size cap forces your hand.
Generation loss, and compressing only once
JPEG is lossy, and the loss is cumulative. Each time a JPEG is decoded and re-encoded it discards a little more information and the artifacts from the previous round get baked in as if they were real detail, so they are preserved and then added to. Do this repeatedly and the image visibly degrades even at high quality settings — the effect is called generation loss.
The practical rule is to always start from the highest-quality original you have and compress once, straight to your final target. Compressing a file that some other tool already compressed, or that arrived via a messaging app which quietly re-encoded it, means starting from damaged material and there is no way to recover what was lost. If a result looks worse than you expect at a comfortable size like 200KB, a re-compressed source is the most likely explanation.
Where 200KB limits tend to come from
Unlike the very tight caps on government forms, a 200KB limit is usually a deliberate modern choice rather than an inherited one. Job boards and content management systems set it because it is roughly the point at which an image stops affecting how quickly a page loads, and page speed affects both how many visitors stay and how the page ranks in search results.
That difference in motivation is worth knowing, because it tells you the limit is unlikely to be enforced to the byte and equally unlikely to be relaxed if you ask. It also means the limit is doing you a favour: an avatar or a listing photograph that respects it will load promptly for everyone viewing it, including people on slow mobile connections, which is exactly the audience most likely to give up on a slow page.