Q. I am a 23-year-old IT sector employee currently working in Delhi. This is my first professional job after graduation. Recently, the company notified that they will be issuing Form 16 to all eligible employees for the purpose of their income tax returns. As a fresher, I have little to no idea about Form 16 and its application with respect to the filing of tax returns. Can you please shed some light on Form 16 and its components, eligibility, and any other important information? Also, do I still need to file my income tax return if I don't receive any form 16 from my employer?
Ms. Neha Sharma, Delhi
Form 16 is a certificate issued to salaried individuals by their employer when the employer deducts tax from the employee's salary. The TDS (Tax Deducted at Source), so deducted by the organization or employer, is deposited with the Income Tax department and Form 16, in turn, is proof of the same. The Form 16 document is one of the most important tax documents for both salaried employees and employers.
What is Form 16?
Form 16 is the certificate issued by an employer in India that summarises the salary paid to an employee and the taxes withheld on such salary. It's also known as a TDS certificate on salary, where TDS stands for tax deducted at the source. The Income Tax Act of 1961 specifies the employer's responsibilities with regard to issuing Form 16, including the timing of issuing, the format in which the details are to be provided, etc.
It is also crucial for employees to understand the information on Form 16 so that they can inform their employer if there is any disagreement about their salary or TDS. Form 16 is a crucial document in the income tax return. Additionally, Form 16 is frequently requested by numerous institutions or entities for a variety of reasons, including personal and home loans, among others.
What are the components of Form 16?
Form 16 is a salary TDS certificate issued annually to salaried employees. It is divided into two parts, Part A and Part B.
Part A of Form 16 comprises the following information:
- Basic details of the employer: Name and address, PAN, TAN of the employer. TAN, or Tax Deduction and Collection Account Number, is a ten-digit alphanumeric number assigned by the Income Tax Department. TAN is required for all entities responsible for deducting or collecting taxes.
- Basic details of the employee: Address and name of the employee, PAN of the employee etc.
- Information about the assessment year (the year when the tax liability is calculated upon the income earned the previous year).
- Other important details of the employee.
- A summary of the Tax Deducted at Source (TDS)
The following information is disclosed in Part B of Form 16, in addition to the employee and employer details provided in Part A:
- Salary earned during the year: This shows the total salary earned by an employee, divided down into various components, such as basic salary, Leave Travel Allowance (LTA), House Rent Allowance (HRA), etc.
- Tax exemptions: Certain allowances, such as HRA, children's education allowance, and LTA, are tax exempt, and the amount allowed as exempt is disclosed in Part B.
- Deductions from income: The deduction for eligible investments/expenses under various provisions of the Act is disclosed in this section. This includes deducting contributions or payments made to the Employee Provident Fund (EPF), Public Provident Fund (PPF), pension plans, premiums paid for life insurance, tax-saving mutual funds, premiums paid for medical insurance, interest on student loan repayments, etc.
Why is Form 16 required?
Form 16 is a crucial document because it:
- Serves as confirmation that the government has received the taxes deducted from your salary.
- Helps with the process of submitting your income tax return to the Income Tax Department.
- When asking for a loan, many banks and financial institutions require Form 16 for verification of the applicant's credentials.
Who is eligible for Form 16?
Employers are required to provide Form 16 to salaried individuals whose income falls under the taxable bracket. If the gross total income exceeds Rs. 2,50,000, then it is mandatory to file an income tax return. The employer is required to deduct TDS and provide Form 16 to those employees whose pay exceeds the limit of Rs. 2,50,000.
If the employer does not deduct tax and the income exceeds the specified limit, then even if the employee doesn’t have form 16, they are still required to file their income tax returns. It is the responsibility of the employer to provide Form 16. The employee can still obtain Form 16 from the employer even if they have quit the job.
Some important features of Form 16
The following are some key characteristics of Form 16:
- Section 203 of the Income Tax Act of 1961 requires that employers provide Form 16, which reflects the entire TDS (Tax Deducted at Source) deducted from their employees' salaries.
- It stands out as proof for employees that can be utilised during IT audits in the form of tax deducted at source from their companies.
- The employer is not required to issue a Form 16 if an employee's income is below the minimum taxable limit.
- Employers who have a TAN can issue Form 16 after the TDS deduction.
- An employer who has deducted TDS must give Form 16 to the employees.
- Employees may request Form 16 from their former employers even after changing workplaces.
Form 16 is crucial for a salaried person in terms of income tax. The information provided on this Form is necessary for filing tax returns. It serves as both proof of TDS and a crucial document for tax compliance.
However, it is the individual's responsibility to pay income taxes and file returns. As a result, if for any reason an employee does not get Form 16 from their employer, he/she is not exempt from filing tax returns on those grounds.
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Note: This story is for informational purposes. Please speak to a financial advisor for detailed solutions to your questions.