Decoding Form 16: significance, components, and FAQs

The deadline to file your income tax return for the Financial Year 2019–20 and Assessment Year 2020–21 is postponed to 30th Nov 2020. And if you are a salaried individual, sorting out Form 16 is a must before filing your returns. In this article, let us look at what Form 16 is and why it’s important to collect yours from your employer.

What is Form 16?

Form 16 is issued under Section 203 of the Income Tax Act, 1961 by an employer to their employee for tax deducted at source (TDS) from the latter’s salary income. It is the summary of the amount paid/credited to the employee and taxes deducted thereon.

Significance of Form 16

Form 16 serves the following purposes:

• Since Form 16 has your TDS details for a financial year, it is an important source of information when filing your income tax return (ITR)
• Form 16 is proof of TDS deduction on salary from your income and is an important document for tax compliance
• You can furnish this form as proof during any income tax-related scrutiny
• Some organizations require you to submit Form 16 from your previous employer as part of the onboarding process
• Banks and other financial institutions accept Form 16 as a valid proof of income, which is crucial to get approval on loans
• In case you are to travel abroad, certain visa checklists require you to submit Form 16

When is Form 16 issued?

As per the current guidelines, an employer is required to issue Form 16 annually on or before 15th Jun of the year following the financial year in which TDS was deducted. In case there was no tax deducted at source in a given year, the employer will not issue Form 16 for that year.

Components of the salary certificate

Form 16 has two components: Part A and Part B.

Part A of Form 16

This part mentions the details of tax deducted at source on the employee’s salary income:

• Name and address of the employer
• TAN and PAN of the employer
• Assessment Year (AY)
• Summary of the amount paid/credited to the employee
• Date and amount of tax deducted at source on a quarterly basis
• Date of tax deposited with the government
• Acknowledgement number of TDS on salary

Your employer can generate and download Part A of Form 16 via the TRACES portal. Before issuing this form, your employer should authenticate its contents. In case you change your job or work with more than one employer in a given financial year, each employer will issue a separate Part A of Form 16 for the period of your employment.

Part B of Form 16

An annexure to Part A, Part B of Form 16 includes the following information:

• Detailed salary breakup including gross income, house rent allowance, gratuity, leave travel allowance, and leave encashment
• Allowances exempt under Section 10
• Deductions under Chapter VI-A of the IT Act
• Deductions under Section 80 C, 80 CCC, 80 CCD
• Deductions under sections 80D, 80E, 80G, deductions for disability, and others
• Net taxable salary
• Education Cess and surcharge, if any
• Rebates under Section 87, 89
• Total tax payable
• Tax deducted
• Balance tax payable or refund

In case you change your job in a financial year, you need not ask for Part B of Form 16 from each of your employers. Requesting the form from either of them is enough.

In addition to the above, Form 16 has specific fields for the following deductions:

1. Section 80C deductions such as life insurance premium paid and PPF contribution made
2. Health insurance premium paid under Section 80D
3. Contribution made to a pension fund under Section 80CCC
4. Employee’s contribution to a pension scheme under Section 80CCD (1)
5. Taxpayer’s self-contribution made to a pension scheme under Section 80CCD (1B)
6. Employer’s contribution made to a pension scheme under Section 80CCD (2)
7. Interest income on savings account under Section 80TTA
8. Interest paid on higher education loan under Section 80E
9. Donations made under Section 80G

Details from Form 16 required to file ITR

You’ll require the following information from Form 16 when filing your ITR for FY 2019–20 (AY 2020–21):

1. TAN and PAN of your employer

2. Name and address of your employer

3. Your name and address

4. Current assessment year

5. Taxable salary

6. TDS deducted by your employer

7. Items exempt under Section 10

8. Breakup of deductions under Section 16

9. Income/loss from house property offered for TDS

10. Income under the head Other Sources offered for TDS

11. Breakup of deductions under Section 80C

12. Aggregate of deductions under Section 80C

13. Tax payable or refund due

Continue to read about Form 16A and Form 16B and FAQs on the topic you can’t miss here.