Understand Form 16 before e-filing your income tax return

Here's a simple primer to what actually Form 16 is and what must be done with it.

Form 16 is a significant document containing your salary details that is issued by your employer. As an employee, you have full right to demand Tax Deducted at Source (TDS) certificate in Form 16 from your employer. The details of the certificate are of great help in filing of Income Tax Returns. If in case, the employer fails to issue Form 16, then s/he shall be liable for a penalty of Rs 100 each day of the default, under section 272A(2) (g).

What is Form 16?

Each year your employer issues Form 16 certificate. This is a certificate U/S 203 of Income Tax Act, 1961 that provides all probable information on tax deducted at source from the income chargeable under 'salaries' head.

To be more specific, it provides details about the tax amount that has been deducted by your employer.

Moreover, it also contains the details of your Salary, Other Income and Tax benefits available to you. It has detailed information about the manner of calculating income as per the income tax laws and tax payable on it.

Components of Form 16

Understanding about the components of Form 16 will assist you to file ITR and you can to do it without any help from a chartered accountant, particularly if your earnings come completely from your salary and do not have any other income source.

Form 16 comprises of two sections:

Part A

This part encompasses your personal information like your name, your address, your employer's name and address, PAN of both, TAN of your employer and receipt number of TDS payment. The information mentioned above assist the Income Tax Department to keep a track of money flow from your as well as your employer's account.

In addition, Part A provides information like assessment year (AY), i.e. the year in which tax liability is computed for the income earned during the previous year. This particular portion of Form 16 also provides information about your employment period with the existing employer.

After that, it provides a summary of TDS deducted by the employer on employee's behalf. This amount is deducted by the employer from your salary from time to time as tax and credits the same to the Income Tax Department. The most relevant information in Part A is TAN (Tax Deduction Account No.) of employers and total TDS deducted as both of the information has to be correctly mentioned in your Income Tax Return so that you can take tax credits for TDS deducted.

Part B

This part of Form 16 provides major information that you require to file your Income Tax Return. First of all, your Salary income is mentioned. Then the tax free allowances like HRA or Conveyance allowance is deducted from salary to arrive at taxable salary. Any other incomes or deduction for Interest on housing loan just follows after this.

Subsequently, deductions are disclosed.

Deductions include those U/S 80C, 80CCC plus 80CCD.

Always keep in mind that the aggregate sum deductible under these respective sections must not go beyond Rs 1.5 lakh. Then after this, deductions U/S 80D, 80E, 80G and others are also mentioned.

The entire deductions are subtracted from Gross Income so as to arrive at taxable income. Hence, tax is then computed on the amount based on the current tax slab.

Importance of Form 16

• Significance of Form 16 cannot be overlooked by the employer as well as the employee. Now let's have a glance at some important points:
• Form 16 serves as source document during filing of Income Tax Return as it comprises of the details about income, deductions, tax calculated and TDS as per the Income Tax Rules.
• It serves as in important document for claiming credit of Tax deducted by employer and you might require it to produce before Income Tax Authorities if you don't get credit of TDS properly
• Form 16 can also be used if you wish to apply for home loans. There are some banks that ask for Form 16 for income proof.
• Form 16 is needed while processing visas. It is an important certificate for acquiring Income Tax Clearance Certificate (ITCC) through IT Department
• As it is an authenticated certificate and therefore it can be used as an Income Proof.

Other important points:

• If TDS is not deducted, then it is not mandatory to issue Form 16 to the employee 
• If the organisation does not possess the TAN, they are not entitled to deduct TDS. Thus, in this situation, they will not give Form 16.
• It is not mandatory that every person requires Form 16; if s/he is self employed then there is actually no way to acquire Form 16. In this situation, it is vital for you to submit ITR and show it as your income proof.

Illustration: Dominic Xavier/Rediff.com

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