Form 16 is a crucial document for the Indian salaried employee’s income tax returns process. Under Section 203 of The Income Tax Act of 1961, every employer is required to furnish their taxpaying employees above the tax exemption limit with Form 16 to certify that the tax deducted at source is being deducted and deposited with the government.

Important updates from the Income Tax department for the financial year 2020-2021

  • The time period for furnishing Form 16 for the financial year 2020-2021 was extended until 31st July 2021 considering the ongoing pandemic.
  • Similarly, the due date for filing TDS deducted by the employers was extended until 15th July 2021.

What is Form 16?

Simply speaking, Form 16 is a statutory obligatory certificate provided by the employer to each tax paying salaried individual annually, as proof of the fact that deducted tax at source has been deposited quarterly with the Government of India.

It contains detailed information regarding the TDS (Tax Deducted at Source) paid by the employer on behalf of the employee to the government as well as all the required data for the breakup and other statutory deductions and exempted allowances. Hence, it is also referred to as a ‘Salary Certificate’ in some scenarios.

It needs to be provided by the employer by May 31st of the financial year that follows the financial year in which the taxes were deducted. The main components of Form 16 are as follows:

Form 16 Part A:

Part A of Form 16 provides all the information related to tax payable to the government as well as other important data such as:

  • Name & address of the employee
  • Name & address of the employer
  • PAN details of the employee
  • PAN details of the employer
  • TAN of the employer
  • Gross salary received by the employee
  • Employment period with current employer
  • Amount of taxes deducted at source
  • Allowances & deductions
  • Certified summary of tax deducted

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Form 16 Part B:

Part B of Form 16 provides a detailed breakup of how much tax is being paid and other salary-related data mentioned in Part A. The most important data found in part B of Form 16 are:

  • Detailed salary breakup
  • Exemptions under Section 10
  • Employment tax
  • Statutory deductions under Section 80C such as:
  • PPF/employee & employer’s contribution for EPF
  • Housing loan
  • National Saving Certificate
  • Life insurance
  • Equity Linked Savings Scheme
  • Other tax saving mutual funds
  • Other statutory deductions under Sections 80E, 80G, 80TTA such as:
  • National Pension Scheme
  • Donations
  • Medical claims
  • Net taxable salary paid
  • Cess & surcharges such as:
  • Education cess
  • Swachh Bharat cess, etc.
  • Rebates mentioned under Section 87 (if applicable)
  • Relief mentioned under Section 89 (if applicable)
  • Refunds based on previous payment (if applicable)

What is the difference between Form 16, Form 16A and Form 16B sd per the Income Tax Act?

The most important distinction to consider is the fact that there are 3 different kinds of Form 16, which are Form 16A, Form 16B and Form 16.

Form 16 is further divided into two sections as Part A and Part B.

Form 16A

Form 16A deals with the TDS applicable on other income of the salaried individuals apart from their salary such as interests for fixed deposits, mutual funds, etc. Since the banks already deduct TDS before depositing the amounts, it is not deducted again by the employer and hence, it is applicable only for those individuals who have another source of income apart from their salary.

Form 16B

Form 16B deals with the TDS applicable on house, property, immovable property purchase, etc. The buyer of the property is expected to pay this tax to the IT department and hence, it applies to personnel who are buying some kind of property only.

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Importance of Form 16 in Income Tax return filing

The importance of Form 16 stems from the fact that it acts as proof of the income tax paid by the salaried employee as well as their income proof. Hence, it can be used as a salary and TDS certificate wherever required.

Below are the most important benefits of Form 16:

  • Acts as salary statement
  • Acts as proof of IT payment
  • Helps in loan & credit card approval
  • Helps with getting a visa issued
  • Helps in keeping track of tax-saving investments
  • Helps in cross-checking the deductions
  • Ensures that the employer has the tax deducted and deposited quarterly with the government

Summary

As we have seen until now, Form 16 is the most important document required in the filing income tax return and hence, it is vital from both the employee and the employer’s perspectives. This helps in removing any kind of discrepancies with the income tax returns process as well as the officially disclosed income, thereby saving them from hefty penalties.

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