Income Tax

Demystifying Income Tax Form 16 for Salaried Person

Various income tax forms are issued under the Income Tax Act 1961. Likewise, Form 16 is issued according to Section 203 of the Income Tax Act 1961. In this article, we shall comprehensively discuss Income Tax Form 16 and also understand why it is essential for salaried individuals.

Basics of Income Tax form 16

This form is basically a certificate that employers issue to their employees. It provides a validation that the Tax Deducted at Source (TDS) is deducted and deposited with government authorities on behalf of the employee. It provides a detailed summary of the salary remunerated to the employee and the TDS deducted.

This form has the information that you require to prepare and file income tax return. In case you lose this form, you may request for a duplicate form from your employer. Further, the form has two components- Part A and Part B. Let’s discuss these two.

Components of Form 16

Its two components are:

Part-A

Part A of this form gives details of the quarterly TDS deducted and deposited, PAN details, TAN of employer, along with other information. Any employer may generate and download Part A of this form through the TRACES portal.

Before the certificate is issued, an employer must authenticate its contents. In case you change your job in a financial year, then every employer shall issue a separate Part A of Form 16 for the employment period.  Some of the essentials of Part A are:

• Employers’ name and address;
• Employers’ TAN and PAN;
• PAN of the employee;
• Summary of tax deducted and deposited quarterly, certified by the employer.

Part B

Part B of this form is an annexure to Part A. Part B has to be prepared by employer for its employees and has details of salary breakup, deductions approved under Chapter VIA. In case you change your job in a financial year, then you must take Form 16 from both employers. Some of the essentials of Part B are:

• Detailed salary breakup;
• Detailed breakup of the exempted allowances under Section 10;
• Deductions permitted under Income Tax Act (under Chapter VIA)-
• List of deductions are as follows:
  • Deduction for life insurance premium paid, PPF contribution etc. under Section 80 C;
  • Deduction for contribution to pension fund under Section 80 CCC;
  • Deduction for self contribution of taxpayer to notified pension scheme under Section 80 CCD(1B);
  • Deduction for the employer’s contribution to the pension scheme under Section 80 CCD(2);
  • Deduction for the health insurance premium paid under Section 80 D;
  • Deduction for interest paid on loan which is taken for higher education under Section 80E;
  • Deductions for donations made under Section 80G;
  • Deductions for interest income on savings account under Section 80 TTA.

• Relief under Section 89.

Eligibility criteria for Income Tax Form 16

As per regulations prescribed by the Finance Ministry, Government of India, every salaried individual who comes under the ambit of taxability is eligible for this form. In case an employee doesn’t fall within the tax brackets, such employee will not require to have tax deducted at source.

Therefore in these cases, the company won’t be required to provide this form to the employee. However, there are specific organizations that, even in these cases, issue this certificate to the employees as it has a consolidated picture of the earnings of an individual and has other uses also.

How is this form essential for salaried individuals?

The Income Tax form 16^[1] is crucial for a salaried individual from the income tax point of view. The details specified in this form is needed for filing the income tax returns.

With this certificate, a taxpayer can prepare their income tax return quickly all by themselves and without any help from Chartered Accountants or financial planners. It is more applicable in case of individuals whose only income source is the salary received from their organization. 

Further, this form can be used to verify the fact whether correct taxes are deposited or not by comparing the amounts with the From 26 AS. Also, it’s not just a TDS proof, but it’s also an essential document for tax compliance. It serves as proof for an employee that he or she has paid tax and can be shown as proof during the income tax-related scrutiny. Banks and other financial institutions also accept this as a valid income proof. Loans applications are also finalised by financial institutions through this document.

Many organizations ask for Form 16 of the previous employer to be submitted as part of their onboarding process. It helps them to make sure that they correctly calculate the tax payable.

Conclusion

When a person receives the Income Tax Form 16 from the employer, the person must ensure that all details mentioned therein is correct. In case of any error, reach out to the concerned person. One of the vital information to be looked at is the PAN number. Ensure that it is mentioned accurately.

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