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Form 16 is a certificate issued by employers, giving details of employees’ TDS (tax deducted at source) usually by mid-June and is used in filing I-T returns. When it comes to ITR filing, Form 16 is perhaps, the most basic and important document for salaried taxpayers. The Income Tax department has revised Form 16 by adding various details.  Effective 12 May 2019, the revised Form 16 comes into effect.  In our post Income Tax Overview we had given an overview of the entire process of income tax. To arrive at the total income and tax on it one needs various documents. For income from Salary Form 16, and Form12BA are needed. In this article we shall explain about Form 16 with pictures and explanation of terms.

What is Form 16?

Form 16 is a certificate issued by your employer according to the format prescribed by the Income Tax authorities.  This form is used to fill the necessary information in the ITR.

  • lists out various things like the total salary paid to you during the period,
  • the total tax that the employer deducted at source (TDS) and
  • the deductions that you have claimed during the year.
  • and is issued on or before June 15 of the next year following the end of the financial year in which tax was deducted.  So Form 16 for FY 2018-19 for income between 1 Apr 2018 to 31 Mar 2019 will be issued by Jun 2019.
  • Form 16 has two parts. Part A and Part B.
    • Part A contains the employee and employer details, the period of employment with the employer and summary of the periodic TDS on your income.
    • Part B has details of income earned as well as details of deductions under sections such as 80C, 80CCC and 80CCD, 80D, 80E (interest on education loan), 80G (donations), and others.

Revised Form 16

The Income Tax department has revised Form 16 format which is effective from 12 May 2019. This means the income tax returns for the financial year 2018-19 will have to be filed on the basis of revised Form 16. For employees, it would be easier for them to fill the necessary information from Form 16 into their ITR

  • Disclosure of standard deduction.
  • Adding various details, including income from house property and remuneration received from other employers.
  • Detailed break-up of tax-exempt allowances such as HRA, LTA claimed under section 10 as required in Income Tax Return.
  • Detailed break-up of tax-breaks under section 80C to 80U as mentioned to employer
  • The previous employer income as reported to your current employer

Details of Employer and Employee

Top part of form consists of details of the Employer and Employee.

Form 16: Employer and Employee details

Form 16: Employer and Employee details

You will find details like:

  • Employer Details: Name and Address of the Employer, PAN number of Employer, TAN Number.
  • Employee Details: Name and Designation of the Employee, PAN Number of employee.
  • Timing Information: Form 16 is for which Assessment year?  Form 16 covers which period.
  • TDS Acknowledgment: Company deducts tax from the employee’s salary, Tax Deducted at Source and submits to the government. Every organization responsible for deducting tax is required to file quarterly statements of TDS for the quarters ending on 30th June, 30th September, 31st December and 31st March in each Financial Year.  Basics of Tax Deducted at Source or TDS explains about TDS. The acknowledgement numbers of TDS submitted is mentioned here.

PAN number: PAN stands for Permanent Account Number. It is a ten-character alphanumeric number  issued by the Indian Income Tax Department. Just like a credit card number or a bank account number, PAN number is unique and belongs to the person it was issued to and cannot be transferred.  PAN is a vital number used by the department of Income Tax to track all financial information related to you. PAN enables income-tax department to link all transactions of the “person” with the department. These transactions include tax payments, TDS/TCS credits, returns of income / wealth/ gift/ , specified transactions, correspondence, and so on. IncomeTax website:About PAN (pdf) , raagvamdatt: What is PAN, who needs it, how to get it (Jul 2011) has details about PAN.

TAN number:All those persons or organizations who are required to deduct tax at source or collect tax at source on behalf of Income Tax Department are required to  obtain Tax Deduction and Collection Account Number or TAN as per  the provisions of section 203A of the Income-tax Act. TAN is a 10 digit alpha numeric number  ex: BLRR02933A. For details on TAN one can read Basics of Tax Deducted at Source or TDS.

Assessment Year: Calendar year starts on January 1 and ends on December 31 but a Financial year (FY) is from April 1 to March 31. As per the Income Tax Act, income earned in a financial year (FY) is taxed in the next Financial Year. FY to which the income belongs is called the Previous year (PY) and the FY in which the income is taxed is called the Assessment year (AY).

Ex:The income earned during FY 2011-12 will be assessed for tax in the FY 2012-13. Here, FY 2011-12 is called Previous Year and FY 2012-13 is called Assessment Year or AY.

Details of Salary Paid

Employer will provide information such as Gross Salary, Perquisites, Various allowances and deductibles . Salary, Net Salary, Gross Salary, Cost to Company: What is the difference explains about Salary, Gross Salary, Perquisites, tax on various components  in detail. law.incometaxindia:Section 17 of Income Tax Actdefines  Salary, Perquisite and  Profits in lieu of salary. Part of Form 16 which deals with details of salary are given below.

Form 16 : Salary Details

Form 16 : Salary Details

Gross Salary: is the amount of salary paid after adding all benefits and allowances and before deducting any tax.

Perquisite: Perquisite or Perk,is an additional benefit provided by the employer to the employee in addition to the salary or wages. It is any benefit or amenity granted or provided free of cost or at concessional rate such as Rent free unfurnished house, Motor car facility, Loans at a subsidized rates to employees etc.  Perquisites provided by company are mentioned in Form 12BA.

Profit in Lieu of SalaryIn lieu of means instead of  It means any payment due to or received by employee from his employer in connection with the termination of employment or due to modification in terms and conditions. For example, Gratuity, Commuted value of pension, Retrenchment Compensation Any sum received under a keyman insurance policy including the sum allocated by way of bonus on such policy etc. received or due to be received to the extent which is not exempt. Profit in Lieu of Salary provided by company are mentioned in Form 12BA

Allowance: Allowance is the amount received by an individual paid by his/her employer in addition to salary to meet some service requirements such as Dearness Allowance(DA), House Rent Allowance (HRA), Leave Travel Assistance(LTA) , Lunch Allowance, Conveyance Allowance , Children’s Education Allowance, City compensatory Allowance etc.  Allowance can be fully taxable, partly or non taxable.

Form 16: Allowance

Form 16: Allowance

Component of Salary(per annum or p.a) Tax
Dearness Allowance Depends on company policy. Mostly fully taxable.
House Rent Allowance Applicable if living in a rented house. Minimum of three amounts.

  1. HRA received from employer
  2. Rent Paid in excess of 10% of the salary
  3. 40% or 50% of the Salary (50 % in case of an individual belongs to metropolitan cities like Mumbai, Delhi, Chennai, Kolkata for all others it is 40%)

 

Conveyance Allowance Conveyance allowance of Rs 9,600 per annum(Rs 800 per month) is exempted from tax. If salary component is more than 9,600, the remaining part is taxable.
Entertainment Allowance Depends on company policy. Mostly fully taxable.
Medical Allowance Medical allowance is a fully taxable component of the salary. However, if you receive reimbursement of medical expenses against submission of bills, such reimbursement is tax free up to Rs. 15000 per year
Overtime Allowance Fully taxable

Section 10 of Income Tax Act 1961: specifies those income which are exempt from income tax. i.e. incomes on which no income tax is payable. Which income is exempt is also based on the kind of assesse ex: Hindu Undivided family, Partner of a partnership firm, Non resident Indian,  individual. Incomes earned by them. law.incometaxindia:Section 10 gives the technical or legal definition as per the income tax act, indiataxes: Exempt income presents the information in tabular format. Some examples of exemptions are:

  • Minor income:Any income which arises to a minor child of an assessee is added or clubbed to the parent’s income under Section 64(1A) of the Act. Section 10(32) however gives exemption from such clubbing upto a maximum of Rs1,500 annually per child.
  • Conveyance allowance: It is an allowance granted to the employee by his employer to meet the expenses incurred on commuting from home to the place of his residence. Conveyance allowance is exempt to the extent of Rs. 800. An orthopedically handicapped employee enjoys a higher exemption of Rs. 1,600
  • Dividend Any income received by way of dividend from a domestic company, or from UTI or from a recognised mutual fund by a shareholder/unit holder is fully exempt from tax.
  • Tax and exemptions on allowances part of the salary have been earlier in the table.

Deductions: From the amount of gross salary, there are certain deductions which are available to the employee in order to get the taxable amount of salary. The following are the deduction available to the employee:-

  • Tax on employment or Professional Tax:  is levied by state government on employment.
  • Entertainment Allowance (EA);  Deduction on entertainment allowance is only is allowed to government employees. No deduction on account of entertainment allowance is available to non-government employees. It is the amount paid by employer for availing entertainment services.The amount of deduction allowed is to the extent of least of the following
    • Rs. 5000 per annum
    • 1/5th or 20% of the salary
    • Actual Allowance received
  • Standard Deduction from gross salary income, which was being allowed up to financial year 2004-05 is not allowable from financial year 2005-06 onwards.
Form 16: Deductions

Form 16: Deductions

Income chargeable under the Head ‘Salaries’ : is obtained by subtracting all exemptions and deductions from the Gross Salary.

Details of other income

Under Section 192(2B) and Rule 26B of Income Tax Act, When an employee also has any income (not being a loss) for the same financial year, chargeable under any other head(such income from Capital Gain, Income from other sources), he may furnish the statement of such other income and any tax deducted thereon to his employer to take them into consideration while deducting tax from his salary. Ex: If an employee has some income other  than salary like interest on Fixed Deposits, insurance commissions and he does not want to get into paying advance tax or self assessment tax he can declare to the employer. The employer shall deduct the TDS on salary inclusive of such reported income also.

Form 16: Details of other income

Form 16: Details of other income

Please note that, statement of loss under any head cannot be furnished but a statement of loss under the head income from house propertycan be furnished. Loss from house property may be adjusted [ Rule 26B]: Simpletaxindia:Can the employer take other Income into account while deducting tax from salary?Simpletaxindia : EMPLOYER CAN ADJ LOSS ON LET OUT HOUSE ALSO WHILE CALCULATING TDS ON SALARY discusses it in detail.

Form no. 12C, which was earlier prescribed for furnishing such particulars, has since been omitted from the Income Tax Rules by the IT (24th amendment) Rules, 2003, w.e.f. 01.10.2003. However, the particulars may now be furnished in a simple statement, which is properly verified by the taxpayer in the manner as prescribed under Rule 26B(2 ) of the Income Tax Rules,1962 and shall be annexed to the simple statement.

Adding all this income gives the Gross Salary of employee. Remember Gross Salary is the amount of salary paid after adding all benefits and allowances and before deducting any tax.

Related articles:

In this article we described Form 16 upto Gross Salary. The other articles will describe the other parts. Hope it was of help.

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