Form 16 is a certificate issued by an employer on behalf of the employees. It presents information on the tax deducted at source (TDS) by the employer. This is why it is also known as a “salary TDS certificate.” The form helps the taxpayer while filing income tax returns. Thus, every employer must provide their employees with Form 16 as it works as proof of tax paid. Generally, the form is not issued for employees that don’t fall under the tax bracket, as they don’t have to pay taxes or file returns. Form 16 is issued under Section 203 of the Income Tax Act, 1961.
What is Form 16?
Form 16 has two parts: part A and part B. Part A contains information on tax deducted by the employer and other TDS-related information. Part B has details like your total income, taxes paid, tax deductions, other income, etc. Let’s take a detailed look at what both parts contain.
Form 16, Part A
- Personal information of the employee and employer like name and address
- Permanent Account Number (PAN) of the employee
- PAN and TAN (Tax Deduction Account Number) of the employer. TAN is a number assigned to the account that collects or deducts tax.
- Assessment year. It is the year when the income earned is taxed. If the income is earned in the financial year 2019–20, then the assessment year will be 2020–21.
- Period during which the taxpayer was employed in the financial year
- Summary of salary with details like gross salary, incentives, deductions, etc.
- Summary of tax deduction and deposition throughout the year
- The date on which the tax was deducted from the salary
- The date on which tax was deposited in the account of the government
Form 16, Part B
- Taxable salary of the employee. Here, the total salary is divided into additional sections like Leave Travel Allowance (LTA), House Rent Allowance (HRA), Leave Encashment, Gratuity, and others.
- Exemptions under Section 10 of the Income Tax Act are also mentioned in Form 16. These include hostel expenditure, conveyance, children’s education, etc.
- Deductions from salary under sections 80C, 80CCC, 80CCD, 80D, 80E, 80G, and others. These are contributions made to the Public Provident Fund (PPF), pension plans, life insurance policies, tax-saving mutual funds, etc. The maximum limit for deductions is Rs. 1,50,000
- Gross income. This includes the total salary of the employee along with income earned from other sources like a house or property, etc.
- Net taxable salary. Total of all the deduction amounts that are reduced from the gross income. The tax liability is calculated on this amount.
- Education cess, surcharge, rebate under Section 87, relief under Section 89
- The total amount of tax payable on income deducted TDS amount and balance tax due
How to Get Form 16?
Form 16 reflects the employee’s total earnings and tax deducted at source. Thus, it must be issued by the employer every year on behalf of their employees. You can get your Form 16 from your employer. In cases where you have quit the job, the employer must provide you with Form 16 for the period during which you received your salary.
The employer or tax deductor can log in to the TRACES portal. A login ID and password are required for this. People logging in for the first time are given a user ID and password based on their TIN and TAN. One can also register as a new user in TRACES. Once logged in, go to the Downloads tab, where one can find Form 16/16A. Enter the required details to download Form 16. Fill in the details of the employee. The employer will have to fill in their details as well.
Importance of Form 16
Form 16 has many benefits for the employees. Some of them are highlighted below.
- Form 16 acts as proof of tax paid. It ensures that the tax has been paid to the government on your behalf.
- It also acts as proof of income earned by an employee, which is recorded with the Indian government.
- The information helps in filing the income tax return (ITR). It also lets the taxpayer prepare their ITR without the help of a CA or a financial planner.
- Form 16 helps immensely during the verification process while securing a loan.
- It also helps during a foreign trip, as it serves as an essential document during visa processing.
- Some organizations, at the time of hiring new employees, ask for Form 16 issued by the previous employer.
Form 16 is a very useful and important document. It contains all the details regarding the income earned and the tax deducted from it. Therefore, it proves to be helpful at the time of filing an income tax return. Apart from serving as proof of tax paid and income earned, it has other benefits as well. Many financial institutions ask for Form 16 at the time of securing loans or even term insurance. So whenever you receive Form 16 from your employer, make sure to save a copy. If you need help with your finances or want to read more such blogs, head over to Piramal Finance. Our experts there will help in solving your queries.