Form 16 is a crucial document for Indian salaried employees as it plays a critical role in the income tax returns process. Under Section 203 of The Income Tax Act of 1961, every employer is required to furnish their taxpaying employees (above the tax exemption limit) with Form 16 to certify that the tax deducted at source is being deducted and deposited with the government.
Hence, it is essential to understand the exact nature of Form 16 and its usage. Since compliance is critical for every tax-paying employee, you should be aware of various aspects of Form 16. Hence, we will be diving deep into Form 16 and providing you with its comprehensive understanding.
What is Form 16?
Form 16 is a document related to tax issued by the employer to each tax-paying employee annually. It serves as proof of the tax deducted at source (TDS), that has been deposited quarterly with the Government of India.
Form 16 contains detailed information regarding an employee’s salary such as the income earned, along with a detailed breakup of the overall earnings, statutory deductions and exempted allowances. Hence, it is also referred to as a ‘Salary Certificate’ in some scenarios. It needs to be provided by the employer by May 31st of the financial year that follows the financial year in which the taxes were deducted.
The main components of Form 16 are:
Form 16 – Part A
Part A of Form 16 provides information about the taxes deducted from the employee’s salary, as well as the PAN details of the employee and TAN details of the employer.
It also consists of other important data such as:
- Name & address of the employee
- Name & address of the employer
- PAN details of the employee
- PAN details of the employer
- TAN of the employer
- Gross salary received by the employee
- Employment period with current employer
- Amount of taxes deducted at source
- Allowances & deductions
- Certified summary of tax deducted.
Form 16 – Part B
Part B of Form 16 provides a detailed breakup of how much tax is being paid and other salary-related information related to the particulars mentioned in Part A.
The most important data contained within Part B of Form 16 are:
1. Detailed salary breakup
2. Exemptions under Section 10
3. Employment tax
4. Statutory deductions under Section 80C such as:
- PPF/EPF
- Housing loan
- National Saving Certificate
- Life insurance
- Equity Linked Savings Scheme
- Other tax-saving mutual funds
5. Other statutory deductions under Sections 80E, 80G, 80TTA such as:
- National Pension Scheme
- Donations
- Medical claims
6. Net taxable salary paid
7. Cess & surcharges such as:
- Education cess
- Swachh Bharat cess, etc.
8. Rebates mentioned under Section 87 (if applicable)
9. Relief mentioned under Section 89 (if applicable)
10. Refunds based on previous payment (if applicable).
Importance of Form 16
The importance of Form 16 stems from the fact that it acts as proof of the income tax paid by the employee as well as their income. Hence, it can be used as a salary certificate wherever required.
The most important benefits of Form 16 include:
- Acts as proof of income
- Acts as proof of income tax payment
- Helps in loan & credit card approval
- Helps with getting a visa issued
- Helps in keeping track of tax-saving investments
- Helps in cross-checking the tax deductions
- Acts as proof that the employer is submitting the TDS amount to the government.
How to Download Form 16 using PAN?
Follow the steps below to download Form 16:
- Visit the Official Income Tax Website.
- If you are filing your ITR for the first time, you need to register for a new account using your PAN and other required details. Conversely, if you are an existing user, log in with your credentials.
- Go to the ‘My Account’ tab at the top and select the ‘Download Forms’ menu. Select ‘View Form 16’ from the drop-down menu.
- Choose the correct assessment year as Form 16 is issued for the preceding financial year.
- Select the link to download Part A of Form 16.
- Next, you can select another link for downloading Part B of Form 16.
- Verify all details contained within both parts of Form 16 and download it using the corresponding button.
Eligibility Criteria for Form 16
The Finance Ministry has authorized employers to deduct TDS from the income of taxpayers who come under the income tax brackets. Hence, every tax-paying salaried employee is eligible for Form 16.
Hence, the sole criterion for being eligible for Form 16 is that you should be a tax-paying employee. However, companies nowadays issue it to employees as a good practice as it consists of the exact information regarding an individual’s wages.
While it is not mandatory to provide these details to a non-tax paying employee, some companies still furnish them with Form 16 as it has other uses too, apart from tax filing.
What to check in Form 16?
An important aspect to consider is that the information mentioned in Form 16 needs to be precise and error-free. It is the responsibility of the employee to verify the same once their employer issues it. The most important factor to consider is that the PAN should be mentioned accurately as any discrepancy with it might lead to unfair transactions or wrongful deductions. If the PAN is mentioned incorrectly, one should approach their HR or accounts department to get it corrected at the earliest.
The rest of the information should also be accurate and updated as and when required by contacting the HR or accounts team. Moreover, any changes such as new housing loans, mutual fund investments, donations, etc. need to be updated with the concerned team so that the information in Form 16 remains updated for the financial year. Modern Employee Management Systems provide these options without having to both your HR.
Uses of Form 16
Form 16 proves useful in a variety of scenarios, such as:
- Compliance & Taxes: Since Form 16 is mandatory for filing income taxes in India, it acts as concrete proof of income providing in-depth and accurate income details for accurate taxation.
- Verification of Income: Form 16 acts as a verified proof of income for an employee, which helps them in cases where authentic income proof is required, such as applications for visas, credit cards, loans, etc.
- Tax Deductions: Form 16 can also be used to prove the deductions in taxes under the Income Tax Act, as this information is contained in Part B of Form 16.
How to file ITR with Form 16?
Once you have Form 16 at hand, employees can file their income tax by following the steps below:
- Visit the Official Income Tax e-Filing Portal.
- Log in with your credentials. If you are filing income tax for the first time, you can enter your PAN and other details to register as a new taxpayer.
- Go to the ‘e-File’ section and select the ‘Income Tax Return’ option.
- Choose the right Income Tax Return form based on your income. Since you already have Form 16, you can use either ITR-1 or ITR-2.
- Enter the required details, such as your PAN, salary details, personal information, etc.
- Once all details are entered, verify it using Form 16, especially the income, tax, and deductions details.
- Click on the ‘Submit’ button to file your income tax return.
- Verify the submission using one of the available options.
Can I file ITR without Form 16?
Yes, you can file income tax returns without Form 16. However, you should ensure that you procure Form 16 from your employer as it is their responsibility to deduct taxes and provide a certificate of TDS. If the employer fails to share Form 16 despite repeated requests, they can contact the Assessing Officer who will penalize the employer for failing to furnish the employee with Form 16.
On the other hand, income tax returns can be filed using other options such as submitting Form 26AS, TDS certificates, rent receipts, tax-saving investment proofs, salary slips, etc. By using these documents, you can safely file your taxes, through the Income Tax website.
Conclusion
Form 16 is one of the most important documents required in filing income tax returns accurately. Hence, it is vital from both the employee’s and employer’s perspectives. It helps in removing any kind of discrepancies with the income tax returns process, as it provides in-depth information related to an employee’s salary.
Form 16 has multiple uses, especially for an employee, and hence, it is mandated by the Income Tax Act that every employer should furnish their tax-paying employee with it. Nowadays, companies usually provide their employees – including the non-tax paying ones – with Form 16, as a general courtesy, due to its versatile usage scenarios.
FAQs on Form 16
1. Is Form 16 and salary slip the same?
Form 16 is very different from a salary slip since Form 16 contains additional salary-related information when compared to a salary slip. A major distinction is that, while the salary slip displays an employee’s CTC, Form 16 displays their taxable salary only.
2. What is Form 16 for?
Form 16 is used for gathering in-depth information about an employee’s taxable income. Since it is generated by the organization employing the individual, it can be used for income tax filing, as well as income proof for acquiring loans, credit cards, etc.
3. Who is eligible for Form 16A?
Every tax-paying employee is eligible for Form 16. The Ministry of Finance of the Government of India has authorized companies to deduct TDS from their employee’s salaries and generate Form 16 to provide them with an accurate idea of these deductions.
4. Is Form 16 Part A mandatory?
Form 16 Part A is mandatory as it provides the details of the employer and the employee, along with their PAN and TAN details. Since it also consists of the quarterly summary of total salary payments, it is an essential document for filing income tax returns.
5. Can you use TRACES to get Form 16 from your employers?
Employers get Form 16 from TRACES using the TDS receipt number. Since an employee would not have it, they would not be able to use TRACES to get Form 16 from their employers. They will have to contact their HR team to get it from their employers.
6. Is Form 16 and Income Tax Return the same?
No, Form 16 and Income Tax Return are not the same. While Form 16 is a TDS certificate issued by the employer, Income Tax Return is the process of filing tax details with the Income Tax Department, declaring their income and taxes.
