What is form 16? All you need to know

Form 16 is a certificate detailing salary income and the Tax Deducted at Source (TDS) by the employer. It is tied to income tax, used by companies to give salaried individuals information on the tax deducted.

Form 16 helps in understanding the tax deducted from the salary in a particular financial year and is crucial for accurately filing the ITR, ensuring compliance with Indian tax laws.

What is Form 16 in income tax? 

Form 16 is a certificate given by an employer to an employee which holds crucial information needed to file income tax returns. It is handed out every year on or before 15 June of the following year, right after the financial year when tax is deducted. This practice is as per Section 203 of the Income Tax Act 1961.

Also referred to as a salary TDS (Tax Deducted at Source) certificate, Form 16 shows the salary paid by an employer to an employee during a financial year. It notes the income tax taken from the individual’s salary.

If, in a financial year, your salary income exceeds the basic tax-free limit of Rs. 2,50,000, the employer will deduct TDS from your salary and give it to the government.

Importance of form 16

• It contains data necessary for filing Income Tax Returns (ITR).
• Assists in preparing ITR without a financial planner or Chartered Accountant (CA).
• Enables verification of paid tax by cross-checking with Form 26AS.
• Acts as evidence of Tax Deducted at Source (TDS).
• Provides proof of income.
• Essential during the loan approval process for income verification.
• Many companies ask for Form 16 from previous employers during joining.
• Useful for visa checklists and organizing foreign travels, affirming financial credibility.
• Each point elaborates on the role Form 16 plays, simplifying tax-related processes and establishing financial authenticity for various purposes.

Form 16 overview

Form 16 is a document that displays the income tax deducted from an employee’s salary by their employer. It consists of two parts: Part A and Part B.

Part A of form 16

Part A contains details of the tax deducted and deposited with the government.

• Employer and employee’s details: Name, address, PAN and TAN.
• Assessment Year (AY): The financial year in which the income is assessed.
• Employment period: The duration the employee was employed in a particular fiscal year.
• Salary summary: Total salary paid.
• Tax summary: Tax deducted and deposited with the IT department.
• Tax deduction date: When the tax was deducted.
• Tax deposit date: When the tax was deposited.
• Bank’s BSR code.
• Challan number.
• Acknowledgement number: Proof of TDS paid.

Part A can be generated and downloaded from the IT department’s TRACES portal, and must be signed by the deductor on all pages.

Part B of form 16

Part B is an annex to Part A, containing additional tax details.

• Relief under section 89.
• Salary breakdown: Detailed breakdown of salary.
• Exempted allowances: Breakdown of allowances exempted under Section 10.

Deductions

Deductions under the Income Tax Act (Chapter VIA), such as:

• Section 80C: Deductions like life insurance premium, and PPF contribution.
• Section 80CCC: Deductions for pension fund contributions.
• Section 80CCD(1): Employee’s pension scheme contribution.
• Section 80CCD(1B): Taxpayer’s self-contribution to a notified pension scheme.
• Section 80CCD(2): Employer’s contribution to a pension scheme.
• Section 80D: Health insurance premium paid deduction.
• Section 80E: Deduction for interest on higher education loans.
• Section 80G: Deductions for donations.
• Section 80TTA: Deduction for interest income on the savings account.

Eligibility criteria for form 16

Form 16 is for salaried individuals falling under taxable slabs. An employer must provide Form 16 if tax is deducted at source from the salary. This form aids in filing an Income Tax Return (ITR) when the salary is the only income source.

Required details from form 16 for IT return filing

Form 16 provides the necessary details for filing ITR:

• Taxable Salary
• Exemption on allowance under Section 10
• Deductions breakdown under Section 16 and Section 80C
• Profit or loss from housing reported by the employee
• Income from ‘Other Sources’ for Tax Deducted at Source (TDS)
• Total deductions under Section 80C
• Outstanding tax refund or payable amount
• Tax Deduction and Collection Account Number (TAN) and Permanent Account Number (PAN) of employer
• Employee’s PAN
• Taxpayer’s name, address
• Current Assessment Year
• TDS amount

Conclusion

Form 16 is a document that your employer provides to you annually, showing the total salary paid to you and the tax that has been deducted from it over the financial year. Although you don’t need to attach this form when you file your income tax returns, it’s crucial to keep it safe as proof of your income and TDS.

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