Form 16

Form 16 is a salary certificate or document issued according to Section 203 of the Income Tax Act,1961 to salaried individuals in India by their respective employers. It contains the entire details regarding the salary given by the organization or employer to the employee in a particular financial year and the income tax that has been deducted from the salary of the individual by the payer. Link mentioned below to download the form:

https://www.incometaxindia.gov.in/forms/income-tax%20rules/103120000000007849.pdf

https://www.incometaxindia.gov.in/Pages/tax-services/form-16A-download-deductor.aspx

According to the Income Tax Act, each employer at the time of making salary payments mandated to deduct TDS, which is computed based on the Income Tax Slab Rates in force for that Financial year. Companies usually do the calculation of tax payable by the employee based on the forecasted earnings and investment declaration shared by the employee during the start of the financial year.

The TDS which is being deducted from the end of the employer or organization is deposited with the Income Tax Department. Form 16 acts as a proof of the same; it is to be issued by the employer to their employees before 31st May of the financial year immediately following the financial year in which the income was paid and tax deducted.

Components of Form 16

One of the most important tax reforms for salaried individual is Form 16. It includes all the information One of the most important tax reforms for salaried individual is Form 16. It includes all the information related to the salary received by the employee along with the tax of which collection done from the salary, by the deductor.

Form 16 is sub-divided into the following two parts which include:

Form 16 Part – A

Part A provides the summary of tax collected by the organization or employer from the salary income, on the employee’s behalf and deposited to the government’s account. It is a certification that is duly signed by the employer that they have deducted the TDS.

Form 16 PART A consists of following details which include:

Personal Information of employer as well as employee: Such as individual and employer’s name, address details, PAN details of both employer and employee. For an employer, it is also a must to give TAN Details as it will help the Income Tax Department to track the flow of money from the employer or employee’s account. In case, an organization does not possess TAN, they are not entitled to deduct TDS. In that situation, they will not provide Form 16.

The Assessment Year (AY) – It is the year in which taxpayer needs to work on the process of return, for instance, income earned between 2017- 2018, the assessment year, in that case, will be 2018-19. The period for which the individual was employed with the employer in the concerned Financial year:

• Summary of the salary paid
• Date of tax deduction from the salary
• Date of tax deposit in the account of government
• Summary of tax deducted & deposited quarterly with the Income Tax Department
• Acknowledgment Number of the TDS Payment
  

This part is generated and downloaded through the Traces portal of the Income Tax department. It also provides details such as Bank’s BSR code through which the payments are done, challan numbers, etc. for future reference. All the pages of Part A should be digitally or manually signed by the deductor.

Form 16- Part B

It is a consolidated statement covering all the details regarding or any other income disclosed by the employee to his or her organization which also includes the amount of tax paid and amount of tax due. It provides information about the same in a comprehensive manner stating income earned by the employee along with the deductions and exemptions applicable thereon, in the prescribed format. Employee details such as name and PAN are mentioned even in Part B

Following information provided in the form mentioned below:

Total Salary Received: Salary structure is further divided into various components such as House Rent Allowance, Leave Travel Allowance, Leave Encashment, Gratuity, and others.

Exemptions Allowed:  According to Sec (10) of Income Tax Act, 1961 such as allowances given to employees for Housing rent (HRA), Conveyance, Children education, and hostel expenditure, medical, etc. are also part of the form.

Gross Income:   The sum of the salary income as received from the employer and any other income declared by the employee such as income earned from house/property, etc.  Information regarding the other income needs to be shared by the employee with the employer during the phase of investment proof submission.

Deductions from Salary: Section 80 C / 80 CCC / 80 CCD includes contributions made towards schemes or instruments such as Public Provident Fund, Life Insurance policies, tax saving mutual funds, pension, Sukanya Samriddhi among others. The maximum limit for the same is Rs. 1,50,000.Deductions under other sections such as 80D (premium paid towards health insurance or Mediclaim), 80E (interest payment on education loan), 80G (donations), deductions for disability and other applicable sections are provided. The details for all these deductions need to be submitted by the employee along with the necessary supporting documents to the employer.

Net Taxable Salary: Total deductions are aggregated under “Chapter IV-A” and reduced from the gross income to calculate the taxable income. Your tax liability is calculated on this amount.

• Education Cess and surcharges if any
• Rebate under Section 87, if applicable
• Relief under Section 89, if any
• Total amount of tax payable on income
• Tax deducted and the balance tax due or refund applicable

What are the different types of Form 16?

Form 16 A

It is the TDS certificate which reflects TDS deducted on the salary income by your employer. It applies to TDS on income apart from the salary. For instance, you receive Form 16 A when your bank makes deductions on interest income earned from Fixed Deposits, TDS on insurance commission or any other income which is liable for such deduction.

Form 16 A provides details of the income earned and TDS deducted or deposited on such income. It includes following information such as name and address of deductor/deductee, PAN details, TAN details of deductor and challan details of TDS deposited.

Form 16B

It is the TDS certificate given for TDS deduction on the sale of the property. This certificate shows that the amount of the TDS deducted on Property by the buyer which has been deposited with the Income Tax Department. The buyer is required to do 1% TDS deduction on the property from the amount which has to pay to the seller at the time of sale of immovable property.

The buyer is later required to submit the TDS with the Income Tax Department and provide Form 16B to the seller of the property. Form 16B is proof that the TDS deducted on the sale of the property has been deposited with the Government.

What are the eligibility criteria for Form 16?

As per the regulations of the Finance Ministry of the Indian Government, every salaried individual who is under the taxable bracket is eligible for the Form 16. If the employee does not fall within the tax bracket set, he or she will not need to have tax deduction at Source (TDS). Hence under these cases, the company has no obligation to provide Form 16 to the employee.

However, these days, as a good work practice, many organizations, even in these cases, issue this certificate to the employee as it contains a consolidated picture of the earnings of the individual and has other additional uses as well.

Process to download Form 16

• It is a must to understand that Form 16 downloaded and issued by the employer, an individual has no right to download his or her Form 16.
• It is a misconception that an individual can himself or herself download Form 16 on the TRACES website by making use of the PAN number. All salaried individuals are eligible to take Form 16 from their employers.
• If your employer makes the TDS deduction from your salary, then the employer must issue a Form 16 which is a kind of TDS certificate that reflects the TDS is deposited to Government.
• Also, the employer should issue Form 16 before the due date of May 31 of every financial year.

Importance of Form 16 for a salaried individual

• Form 16 is of utmost importance from the income-tax point of view. The details mentioned in the form needed to do filing of Income Tax Returns. It helps the taxpayer to easily do the calculation of the Income Tax Return in India on its own without seeking the assistance of Chartered Accountants or financial planners. It applies more for individuals, who are having a source of income is the salary they receive from their organization.
• Form 16 helps in tracking whether the correct tax is deposited in the account of government or not as compared with the amount with Form 26AS.
• It is not only proof of TDS, but it also looked upon as an important document for tax compliance. It is the only document needed by an employee for furnishing proof regarding the tax paid. TDS certificate is considered as a valid proof by banks, other lenders, and financial institutions. For loan applications, many financial institutions ask for this document as a part of their verification process.
• Many organizations demand Form 16 of the previous employer (in the same financial year) to be submitted to them as a part of the onboarding process. This helps them to ensure that they calculate the tax payable in a correct manner as the slabs of the Income Tax changes based on the total earnings of an individual in that year.
• If you are planning to travel abroad, many visa checklists such as one for Schengen visa, ask for Form 16 as one of the documents to be submitted.

When you have multiple employers in a financial year

It happens when people changed their jobs and worked with multiple employers in a financial year, they will receive individual Form 16 from all the employers.

What should a receiver check in Form 16?

Once an individual receives Form 16 from the employer, it is the responsibility of the employee to ensure that correct details given in the form. After doing the verification of the personal details and details of the amount of income and TDS deducted. The most important thing one needs to confirm in Form 16 is the PAN number. If incorrect details of PAN are being provided, one should immediately provide correct details to the Payroll/ Finance or HR Department of the organization.

In response to that, the employee should issue a rectified and updated Form 16 by his or her employer.

Besides this, the employer would also need to correct from their end by filing a revised return of tax, to credit the TDS proceeds to the correct PAN.

Responsibility of the employer concerning Form 16

The employer or the tax deductor should always ensure that all the details given in  Form 16 including salary deductions, PAN or TAN, etc are correct and each page duly signed by a competent and responsible person of the company. Also, the certificate should be issued to the employee, on or before the deadline of 31st May, so that individuals can file their tax returns well in time.

Form 16 for previous years

In the event, if the individual replaces his or her earlier Form 16, an employee, in that case, can contact the concerned employer to get a duplicate copy of the same.

Is Form 16 and Form 16A are similar?

Many people were living in the assumption that Form 16, and Form 16 A are the same and make use of the terms interchangeably. These two are different documents. The objective of both Form 16 and Form 16 A is the same, the only difference lies in the issuing body. Form 16 reflects the Tax deducted at source for a salaried employee but form 16-A is applicable for a non-salaried employee. In simple words, Form 16 A is the TDS certificate for income earned other than salary.

Income other than salary comes where people rendering their services to an organization not as an employee but as a consultant and earning contractual or professional fees. In that case, people become eligible for Form 16 A. It is also applicable when the tax deduction is on interest earned from fixed deposits which are done by the bank or organization.

Another case where one issues Form 16 A is on insurance commission paid. This certificate includes the personal details of deductee or deductor such as an address, name, PAN/TAN and other details of TDS deposited or deducted. The income on which TDS deduction takes place is also specified.

Is there any link between Form 16 and Form 26AS?

Form 26 AS is the combination of all the tax deducted from your salary and non-salary income. It is to be deposited with the authorities concerned. Details of the tax refund, if received any during the financial year will also be part of form 26 AS. Ideally, information related to the TDS amount of both Form 26 AS and Form 16/ 16 A should match.

If there are discrepancies, the Income Tax Department considers the TDS figures as per the Form 26AS only.

Tax Return and Form 16

Form 16 is one of the most important documents which one needs to keep handy at the time of filing Income Tax Return every year. The tax collected at the source by the organization or employer is based on the tax slabs applicable on the total earnings, as known by and disclosed to the employer.

If any income earned (such as bank interest) during the year which is not in the knowledge of the employer, the same will not be shown in Form 16 but it should form part of the tax return.

Is No Form 16 means no tax return?

It is the responsibility of the employer to provide a certificate of TDS for the deducting tax on salaries. If an employer fails to do so then he needs to pay a financial penalty of Rs 100 daily according to Section 272 A (2) of the Income Tax Act.

Even after making a multiple request, if an organization or employer refuses to issue the TDS certificate. Then, in that case, there is a possibility of tax deducted not being deposited by the deductor with the concerned government authorities.

Employees urges with the concerned Assessing Officer to take the necessary remedial action if tax deducted was not deposited. The assessing officer has a right to hold penalty proceedings against the employer.

The onus on paying Income Taxes and filing of returns is on the individual. If the tax is due to any reason, he or she is not being exempted to file tax returns on those grounds. In that case, you can download an alternative that is 26 AS from the Income Tax / Bank website, TDS Certificates from the bank, tax saving investment proofs, rent receipts, and your salary slips can be used to work on your Income Tax Return filing.

Preserving Form 16

 Even though there is no need to attach Form 16 as a supportive document while filing the Income Tax Returns, it is a mandate to keep a record of 6 years from the end of the relevant financial year of Form 16.