As the due date for return filing comes nearer, you may receive email reminders from the Income Tax department to file your returns in time. Currently, the process of submitting income tax returns is online and efficient.
Form 16 is the most common financial document that most of you will require while filing your income tax return.
What Is Form 16 In Income Tax?
The Form 16 meaning states that it is a certificate provided to salaried employees by the Employer. It contains the requisite details that enable an employee to file the income tax return for a financial year. Form 16 shows a bifurcation between the Employer's salary earned and tax deducted at source (TDS) against the same. It contains the quantum of the tax deducted and the date of deposit to the government during a financial year.
If more than one organization employs you in a financial year and each Employer deducts tax, then you must obtain a separate Form 16 from each. However, if the income is below the basic exemption limit and the Employer does not deduct any tax from your salary, you may not need Form 16.
Why is Form 16 required?
Form 16 acts as proof that the Employer deducted tax from your salary and deposited it with the central government. While the responsibility to deduct and deposit tax at source lies with the Employer, the responsibility to pay income tax is with the employee. If the Employer fails to deposit the TDS, it does not absolve the employee from tax liability. It is the employee's responsibility to pay taxes to avoid penalties. The employee may later claim the TDS from the Employer. Additionally, if you find a delay or error in submitting TDS, you may request the Employer to rectify it.
Form 16 also helps you easily and efficiently file income tax returns online. It captures details of tax computation based on investment declarations made by you at the beginning of a financial year. It includes allowances your company may offer and other relevant details impacting the tax amount. For example, house rent, medical premium, investments under section 80C, etc. Form 16 provides a clear picture of income tax computation, payment, and tax refund.
Banks and financial institutions often use Form 16 to estimate an applicant's creditworthiness and liquidity, especially for loan and credit card applications. Form 16 impacts the eligibility, quantum of loan, credit limit, terms of the arrangement, and even interest rates. Form 16 is also useful for visa application and acts as proof of income.
Who is Eligible for Form 16?
Any individual who earns salary income and must file income tax returns is eligible for Form 16. In case the individual does not need to file an income tax return, it is not mandatory to submit Form 16. Regardless, the Employer may issue the certificate so the employee can track earnings in a financial year.
When is Form 16 issued?
For individuals, the due date for filing returns is 31st July of the assessment year. To avoid delay, the due date for Form 16 is 31st May of the assessment year. Therefore, the employee has sufficient time to file the return. For clarity, the financial year is between 1st April and 31st March, whereas the assessment year is the subsequent year for income assessment and taxation.
Form 16 is an extremely important tax document, and you must make efforts to preserve it. If you misplace the certificate, you may retrieve it from your email. If you receive a hard copy from your Employer and lose it, you can request your Employer to issue another Form 16.
Also, procuring Form 16 is relatively easy if you are an employee. The Employer or entity that deducts tax must provide Form 16 on or before 31st May. If there is a delay in receipt of Form 16 by mid-May, you may remind your Employer to share the same. You may even submit your return without Form 16, but the income tax department can call for it in case of any anomalies or discrepancies in the return.
What are Form 16A & 16 B?
Form 16 includes two parts – Part A and Part B. Part A contains details of tax collected by an employer or organization from the employee's salary and deposited with the Income Tax department. Part A is on behalf of the employee. Part B is a consolidated statement containing details of salary paid, deductions, or any other income disclosed by the employee. Below are comprehensive details for Part A and Part B of Form 16.
● Part A of Form 16 includes basic details such as the employee's name, address, and PAN.
● It contains details of the PAN and TAN of the Employer and other information to corroborate tax deposited by the Employer. It also comprises the name and address of the Employer.
● It consists of details pertaining to the quantum of tax deducted, date of deposit with the Central Government account, and details of a challan issued by the government.
● An employer can generate and download Form 16 through the TRACES portal. The Employer must authenticate the contents of Form 16 before issuance to the employee.
● Part B of Form 16 is an annexure to Part A. The Employer prepares Part B for its employees and contains details of the salary structure and deductions under Chapter VI-A.
● Part B of Form 16 is an extensive breakdown of tax computation based on your investment declaration submitted to the Employer at the beginning of the financial year and subsequent investment proof submission.
● It contains details of allowances offered by the Employer and is necessary for tax computation.
● Any other details such as house rent, health insurance premium, EMI for home loans, and tax-exempt donations also form part of Part B, Form 16.
● Part B may contain some or all of the following details:
● Details of Gross Total Income
● Allowances are exempt under section 10 of the Income Tax Act.
● Tax on employment
● Tax on total income
● Swachh Bharat Cess, Education Cess, or any other cess levied by the government periodically.
● Any rebate on tax or surcharge
● Deductions under Chapter VI A of the Income-tax Act include various sub-sections under section 80, allowing the employee to claim a deduction from the total taxable income and be liable for the balance. The subsections to section 80 include the following deductions:
80C: Deduction for payment of life insurance premium, deferred annuity, contributions to provident fund, subscription to certain equity shares or debentures.
80CCC: Deduction relating to contribution to certain pension funds.
80CCD (1): Deduction concerning contribution to pension scheme of Central Government.
80CCD(1B): Deduction for contribution to pension scheme of Central Government.
80CCD (2): Deduction for Employer's contribution to pension scheme of Central Government by the Employer.
80D: Deduction in respect of medical premium.
80DD: Deduction for maintenance, including medical treatment of a dependent who is a person with a disability.
80DDB: Deduction in respect of expenditure on medical treatment of specified disease.
80E: Deduction in respect of interest on loans taken for higher education.
80EE: Deduction for interest paid on loan taken for residential house property.
80EEA: Deduction for interest paid on loan for certain house property on affordable housing.
80EEB: Deduction regarding interest on loan taken for purchasing an electric vehicle.
80G: Donations to charitable institutions, trusts, and certain funds.
80GG: Deductions for rent paid by non-salaried individuals without any house rent allowance benefits.
80GGA: Deductions for certain donations for scientific research or rural development.
80GGC: Deductions in respect of non-cash donations to any Political Party.
80TTA: Deductions for interest earned on savings bank accounts.
80TTB: Deductions for interest on deposits.
80U: Deduction for a person with a disability.
Most information for Part A and Part B of Form 16 is available in 26AS. However, 26AS does not include all the information available in Form 16. Form 26AS only contains details of TDS deposited by the Employer with the Central Government. The salary structure and deductions under various sections are not available in Form 26AS.
How can you use Form 16 to your advantage?
Form 16 is comprehensive and informative, and it has the following advantages:
1. In case of income tax scrutiny, an employee can submit this as proof of income.
2. The Employer may not issue Form 16 if the employee's total income is below the taxable limit.
3. It is a definitive TDS certificate issued to salaried employees and proof of employee salary receipt.
4. It contains details of tax paid by the Employer on behalf of the Employee.
5. If the Employer deducts TDS, the responsibility to issue it to the employees lies with the Employer. The Employer is also liable to deposit TDS on time to the government. Form 16 allows corrections, and there is scope for rectifying errors. There is scope for the rectification of errors.
6. Only employers with TAN (Tax Deduction Account Number) can deduct TDS and issue Form 16.
7. Form 16 is not only a proof of TDS but a document of importance for tax compliance.
8. Banks and financial institutions also accept it as valid income proof and treat it as proof of income at par with a salary slip.
How to Download Form 16?
Follow the below steps to download Form 16 from the Income Tax Department website –
● Log on to the official website of the Income Tax Department (https://incometax.gov.in)
● Look for the 'Income Tax Forms' option under the 'Forms/Download' section and click on it.
● Next, the 'PDF' and 'Fillable Form' options are available under 'Form 16'.
● Click on the appropriate options, and you can download the form on the next page.
How to File ITR with Form 16?
For starters, collect all the requisite documents such as Form 16, Form 26AS, final computation of tax liability, and others before moving to the filing process.
Below is the guide for filing ITR on an e-filing website.
● Visit the Income Tax website and access your PAN with your credentials.
● Select 'e-File' and click on 'Prepare and submit ITR online.
● Go to the appropriate income tax return form and assessment year.
● Fill out all the details requested and then click the 'Submit' button. Here, the website will request to upload all the required forms, including Form 16.
● Upon successful submission of the form, a message will display the status for ITR processing.
● You may use any one of the three different methods available for the e-verification of your income tax return.
● If the return is not e-verified, print the ITR-V form, sign it, and submit it to CPC on or before 120 days from the date of e-Filing.
As a salaried professional, filing your income tax return on time is extremely important. Therefore, Form 16 is a requirement and one of the most necessary tax forms. It also contains the most information to prepare income tax returns and helps you streamline the return filing process. It is pertinent for you to understand Form 16 and the intricacies involved carefully.
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