Under the Income Tax Rules, Form 16 is the certificate of deduction of tax at source and issued on deduction of tax by the employer on behalf of the employees. These certificates provide details of TDS / TCS for various transactions between deductor and deductee. It is mandatory to issue these certificates to Taxpayers.
What is Form 16?
Form 16 is a certificate issued to salaried individuals from their employer when he deducts tax from the employee salary. In simple words, it is an acknowledgment which states your deducted tax has been deposited with the income tax department.
Form 16 is an important document that is issued in accordance with the provisions of the Income Tax Act,1961. Form 16 contains details of the amount of tax deducted at source (TDS) on salary by your employer along with the salary breakup for the financial year. In a nutshell, it could be said that Form 16 is a certificate of proof of the TDS deducted & deposited by your employer.
For Example, the income from your salary for the financial year is more than the basic exemption limit of Rs. 2, 50, 000. Then, in this case, your employer is required to deduct TDS on your salary and deposit it with the government. When Form 16 is provided to an employee by their employer, it is considered as a source of proof of filing their Income Tax Returns. And if your income does not fit the basic exemption limit, the employer does not deduct any TDS in that case.
Form 16 has mainly 2 components namely Part A and Part B.
What is Part A of Form 16?
This part of income tax form 16 covers employer, employee, TDS payment details. It shows quarter-wise details of your tax deposited with the government.
The employer generates and downloads this part of Form 16. Before issuing this certificate, the employer will authenticate for the correctness of its contents. Form 16 Part A can be downloaded from the TRACES.
It is vital for you to get a separate Part A of Form 16 for the period of employment if you have changed your job. Following are the components of Part A of Form 16:
- PAN details of the employee
- PAN & TAN of the employer
- Employer Name and address
- Summary of tax deposited and deducted quarterly, certified by the employer.
What is Part B of Form 16?
This part shows the detailed computation of Income, on the basis of which tax is being calculated and deducted by your employer. It contains the breakup of the salary earned by you, various deductions, exemptions (if any), and the tax computation after considering all the items on the basis of current tax slab rates. It contains the following information :
- Total Salary Received: Salary structure is further broken down into various components such as House Rent Allowance, Leave Travel Allowance, Leave Encashment, Gratuity, and others.
- Gross Salary: This is the sum of the salary income as received from the employer and any other income declared by the employee such as income earned from house/property etc. Details regarding other income need to be shared by the employee with the employer during the phase of investment proof submission.
- Gross contains three parts namely: 1. Part B 2. ITR-1 3. Form ITR
- Exemptions Allowed: As per Section (10) of Income Tax Act, 1961 such as allowances given to employees for Conveyance, Housing rent (HRA), Children education and hostel expenditure, medical, etc. are also mentioned in the form.
- The list of allowances are as follows:
• Travel concession or assistance under section 10(5)
• Death-cum-retirement gratuity under section 10(10)
• Commuted value of pension under section 10(10A)
• Cash equivalent of leave salary encashment under section 10(10AA)
• House rent allowance under section 10(13A)
• Amount of any other exemption under section 10
- Deductions From Salary: Section 80C / 80CCC / 80CCD includes contributions made towards instruments or schemes such as Public Provident Fund, Life Insurance policies, tax saving mutual funds, pension, Sukanya Samriddhi among others. The maximum limit for the same is Rs. 1,50,000.
- Deductions under other sections such as 80D (premium paid towards health insurance or Mediclaim), 80E (interest payment on education loan), 80G (donations), deductions for disability, and other applicable sections are provided. The details for all these deductions need to be submitted by the employee along with the necessary supporting documents to the employer.
- Net Taxable Salary: Total deductions are aggregated under “Chapter IV-A” and reduced from the gross income to calculate the taxable income. Your tax liability is calculated on this amount.
- Education Cess and surcharges if any
- Rebate under Section 87, if applicable
- Relief under Section 89, if any
- The total amount of tax payable on income
- Tax deducted and the balance tax due or refund applicable.