Form 16

Form 16: Overview

What is Form 16

Form 16 is a document or certificate, issued as per the Section 203 – Income-Tax Act 1961, to salaried professionals in India by their respective employers. Also, referred to as a “salary certificate”, 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 removed from the salary of the individual by the payer.

As per the Income Tax Act, every employer, at the time of paying salaries, is required to deduct Tax (or TDS – Tax deducted at source), computed on the basis of the income tax slab rates in force for that financial year. Companies usually calculate the tax payable by the employee, on the basis of the forecasted earnings and investment declarations made by the employee at the beginning or during the course of the year.

The TDS, so deducted, by the organization or employer is deposited with the Income Tax department and the Form 16 in turn is a proof of the same. Employers need to issue the Form 16 to their employees on or before 31st May of the financial year immediately following the financial year in which the income was paid and tax deducted.

Importance of Form 16

For a salaried person, Form 16 is of utmost importance from income-tax point of view. The details mentioned in this Form are required for filing of Income Tax Returns.

With this certificate, the taxpayer can easily prepare their income tax return in India, by themselves, without seeking the help of Chartered Accounts or a financial planner. This is more applicable for individuals, whose only source of income is the salary that they receive from their organization.

Form 16 can be used to verify whether correct taxes are deposited in the govt. account by comparing the amounts with the Form 26AS.

Also, it is not only a proof of TDS but is also looked upon as document of importance for tax compliance. It is the only document that an employee has to furnish to prove that he or she has paid tax and can be shown as proof during any income tax related scrutiny. Banks, other lenders and financial institutions also accept it as a valid income proof. For the purpose of loan applications, many financial institutions require this document as a part of their verification process.

Many organizations require Form 16 of the previous employer (in that same financial year) to be submitted to them, as part of their onboarding process. This helps them to ensure that they calculate the tax payable correctly as the income tax slabs change depending on the total earnings of an individual in that year.

Also, if one is planning to travel abroad, many visa checklists such as the one for Schengen visa, ask for Form 16 as one of the documents to be submitted.

Hence, this is one document which is required for both -- business as well as for pleasure!!

Eligibility for Form 16

According to the regulations issued by the Finance Ministry of the Indian Government, every salaried individual who falls under the taxable bracket is eligible for the Form 16.
If an employee does not fall within the tax brackets set, he/she will not need to have Tax Deducted at Source (TDS). Hence, in these cases, the company is not under an obligation to provide the 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.

Components of Form 16

One of the most important income tax forms for salaried individuals, Form 16 is very simple and easy to understand. It contains all the information related to the salary received by the employee along with the tax that has been collected from the salary, by the deductor. 

The Form 16 is sub-divided in to the following two parts.

Form 16 Part A

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

It contains the following:

  • Personal information of the employer as well as the employee. Particulars such as the individual and employer’s name, address details, PAN details of both and employer’s TAN details. (TAN refers to the number assigned to an account responsible for the deduction and collection of tax). These details help the IT Department to track the flow of money from the account of employee and employer.

It should be noted that if an organization does not possess the TAN, they are not entitled to deduct TDS. Thus, in this situation, they will not provide the Form 16.

  • The Assessment Year (AY) – As the name indicates, this refers to the year in which the income is getting assessed or in other words, the year in which the taxpayer needs to work on the tax return processes. For example, for the income earned between 1 April 2015 and 31 March 2016, the Assessment Year will be 2016-17.
  • The time 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
  • Acknowledgement 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 were done, challan numbers etc. for future reference. All the pages of Part A should have been digitally or manually signed by the deductor. 
Form 16 Part B

Part B is a consolidated statement covering details regarding salary paid, any other income as disclosed by the employee to his/her organization, amount of tax paid and tax due, if any. It presents the information in a comprehensive and orderly manner stating the income earned by the employee along with the exemptions and deductions applicable thereon, in the prescribed format. Employee details such as name and PAN are mentioned even in Part B.

It contains the following information:

  • Total Salary received. The Salary is further broken down into various components such as House Rent Allowance, Leave Travel Allowance, Leave Encashment, Gratuity,
  • Exemptions allowed as per Income Tax Act (Sec 10) such as allowances given to employees for Conveyance, Housing rent (HRA), Children education and hostel expenditure, medical, etc.
  • Gross Income. This is 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. Details regarding other income needs to be shared by the employee with the employer the during the phase of investment proof submission. It should be noted that other income can also be negative in nature such as loss from house/property or capital gains etc.,
  • Deductions from salary under section 80 C / 80 CCC / 80 CCD are provided. This includes contributions made towards instruments or schemes 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 providedThe details for all these deductions needs 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

Multiple employers in a financial year

In case of people who have changed jobs and hence worked with multiple employers in a particular financial year, they will receive individual Form 16 from all the employers.

Things to be checked in Form 16 by the Receiver

Once an individual receives the Form 16 from the employer, it is his/her responsibility to ensure that all the details mentioned therein are correct. In addition to verifying the personal particulars and details of amount of income and TDS deducted, the most important thing one needs to confirm in Form 16 is the PAN number. If it is mentioned inaccurately, one should immediately reach out to the HR /Payroll/ Finance Department of the organization and get the same corrected. The employee will be issued a rectified and updated Form 16 by his/her employer. Besides, the employer would also need to make a correction at their end by filing revised return of tax, to credit the TDS proceeds to the correct PAN.

Responsibility of the employer w.r.t. Form 16

The employer or the deductor should ensure that all the details mentioned in the Form 16 such as salary, deductions, PAN, TAN etc. are captured correctly and each page is 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, that an individual misplaces his/her earlier Form 16, they can reach out to the concerned employer, who will issue them a duplicate copy of the same.

Are Form 16 and Form 16A similar?

While many people assume that both these forms are the same and use the terms interchangeably, these are in reality, two different documents. The objective of Form 16 and Form 16A is the same as they are both TDS certificates and the difference lies in the issuing body. While Form 16 shows the tax deducted at source (TDS) for a salaried employee, Form 16A is applicable for non-salaried employee. In simple words, Form 16A is the TDS Certificate for income other salary.

People rendering their services to an organization not as employee, but as a consultant and earning contractual/professional and other fees for their services, are eligible to receive Form 16A.  Also, there are many other areas where TDS can be applicable like the tax for interest earned on your Fixed Deposits, etc. Here bank is the body/organization who deducts the tax at source. Hence, for every financial year they must issue a TDS certificate called Form 16A to the customer.

Form 16A is also issued for tax deductions on insurance commission paid. This certificate has personal details of the deductor and deductee such as name, address, PAN/TAN details, and details of TDS deducted & deposited. The income on which TDS is deducted is also specified.

Link between Form 16 and Form 26AS

Form 26AS will combine all the tax deducted from your salary and/or non-salary income and deposited with the authorities concerned. Details of tax refund, if any, received during the financial year will also be available in this form. So, tax deductions that are shown in Form 16 / Form 16 A can be cross-checked and verified using Form 26AS. Ideally, the TDS amounts reflected in Form 26AS and Form 16/16A should always 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 critical documents that one needs to keep handy before or while filing the Income Tax return before 31st July every year.

It’s a rookie mistake to believe that if there is no balance tax payable mentioned in the Form 16, then the individual can simply copy the details of Form 16 in the tax return form. This is not always true. The tax collected at 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 one has earned any income during the year which has not been shared with the employer (such as bank interest), the same will not be reflected in the Form 16 but should definitely form part of the tax return. Also, it is quite possible that the TDS deducted by another deductor such as bank may not be sufficient as they deduct tax on usually a flat percentage such as 10%, whereas a higher slab rate may be applicable when all the income sources are consolidated and hence there is a tax due in your return. So, there may be a tax payable during filing the return beyond the deductions as shown in Form 16 and/or 16A.

Is No Form 16 = No Tax Return?

The responsibility of deducting tax on salaries and providing a certificate of TDS is on the employer and failure to do so will attract a financial penalty of Rs. 100 per day of default, as per Section 272A(2)(g) of the I-T Act.

In spite of multiple requests, if an organization or employer denies issuing the certificate, then there is a possibility that the tax deducted has not been deposited by the deductor with the concerned government authorities. Employees are urged to intimate the concerned Assessing Officer, who in turn will take the necessary remedial action and initiate the penalty proceedings against the employer.

However, the onus of paying Income Taxes and Filing of Returns is on the individual. Hence, if due to any reason, even if one does not receive the Form 16 from the employer, he/she is not exempt from filing tax returns on those grounds. Alternate documents such as Form 26AS, which can be downloaded from the Income Tax / Bank website, TDS Certificates from bank, tax saving investment proofs, rent receipts and your salary slips can be 2used to work on your Income Tax Return filing

Preserving Form 16

Although Form 16 is not required to be attached as a supporting document while filing income tax returns, it is necessary that the document is preserved for at least 6 years from the end of the relevant assessment year. So, ensure that in the enthusiasm for festive cleaning of homes, the Form 16 is not thrown out along with other redundant things.

We hope that this information has simplified the annual ritual of Income Tax Filing and made it seem like a breeze.

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