Form 16 is a document we all wait when we are in service to file our returns. But have you wondered, what is Form 16 & what it tells about the taxpayer?
What is the reason to issue Form 16 and what is the significance?
Form 16 Details
According to section 203 – Income Tax Act 1961, FORM 16 is a document or certificate to a salaried professional in India by their respective employers. Form 16 is also issued to pensioners retired from central government service.
Form 16 contain all the information you need to prepare and file your income tax return. It also referred to as a “salary certificate” and it contains the entire details regarding the salary which is given by organization in a particular financial year, the income tax that is deducted from the salary of the individual payer.
Form 16 must be issued by every year by an employer to employees the last date to provide the Form 16 is before 15 June (for the year 2019 it is 15 July, as extended by the Government).
Form 16 & TDS
As per the Income-tax Act, the employer is required to deduct a TDS (Tax deducted at source) on the basis of this the income tax slab rate. They calculate tax on the basis of salary given to employee and deductions declared by the employee.
So the TDS is deducted by the organization and deposited with the income tax department and the FORM 16, in turn, is proof of the same.
Components of Form 16
There are two components
Part A of FORM 16
Part A gives the abstract of tax collected by the organization, from the salary income, on the employee’s behalf and deposited in the government’s account.
In case, the employee has worked for more than one employer during the financial year, he /she gets will get 2 Part A. Part A is also known as Annexure I.
Components of FORM 16 Part A TDS certificate:
1. Name, TAN No., PAN No. , and address of the employer
2. Name, PAN No., and address of the employee
3. Detail of tax deducted and deposited quarterly with the government
4. Assessment year for which the TDS has been deducted
5. The time period of employment with the employer
6. The TDS payment acknowledgment no.
7. Summary of the salary paid.
8. Date of tax deduction from the salary
9. Date of tax deposit in the account of government
This part A of FORM 16 is generated through the TRACES portal of the income tax department. All pages of Part A should be digitally or physically signed by the deductor.
PART B OF FORM 16
This PART B covers details regarding salary paid or any other income as disclosed by the employee to his/her organization. It contains details about the computation of taxable income and tax to be paid. Part B is also known as Annexure B. The data in Annexure II is the data that the income tax department considers for verifying the tax liability on an annual basis.
Components of FORM 16 Part B TDS certificate:
1. Detailed salary particular like HRA, the deduction claimed like PPF, NSC, PENSION, GRATUITY, LEAVE ENCASHMENT, LTA, etc.
2. Education tax and surcharge
3. Deduction allowed under the income tax act
4. Total salary received
5. Gross income
6. Net taxable salary
7. Rebate under section 87, if applicable
8. Relief under section 89
9. Total amount of tax payable on income
10. Tax deducted and the balance tax due or refund applicable.
If you had more than one jobs in a year, then you will get more than one FORM 16. The employers prepare part B FORM themselves and issue it along Part A.
What is new in FORM 16?
From this year (AY 2019-20) there are some changes applicable.
In the last year, the budget has re-introduced the standard deduction of Rs. 40,000 (AY 2019-20) in lieu of annual medical reimbursement of Rs 15,000 and Rs 19,200 of annual transport allowance.
The reason for standardization of the Form 16 in the new format is to ensure the right exemption are being claimed so that the same can be matched with the return filed by employers.
The revised form will also include details of deduction in respect of interest on deposits in savings accounts, rebate and surcharge are applicable. The exemption is available on saving bank interest up to Rs 10,000 and Rs 50,000 exemption available to the senior citizen. Previously, people would hide the interest income by maintaining fixed deposits in different branches.
The new format also requires different disclosure of income/ loss from house property and income from other sources by the employee, which are offered for TDS.
Newly introduced formats will disclose all deduction of income which is tax exempt. Hence income under section 10 needs to be captured under ‘’income from other sources”
It is important for the income tax department to determine NRI status for taxpaying individual or company. NRIs would have to correctly mark the number of days to stay in India and aboard.
It is also advised that you check every detail mentioned in the Form 16 before filing returns.
Benefits of Form 16
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