Understanding the FORM 16

Most of the employees know that FORM 16 is required to file their income tax return. Let us understand about form 16 and its components.

TAX vs TDS:

TAX: 

After the completion of financial year, the assessee shall compute the tax liability based on the income earned during the year less eligible deductions under Chapter VI-A. It is the responsibility of the assessee to compute the tax based on the tax slabs mentioned in the Finance Act. The assessee can pay the taxes in various forms like
-TDS (TAX DEDUCTED AT SOURCE)

-Advance Tax
-Self Assessment Tax

-TCS (TAX COLLECTED AT SOURCE)

TDS:

Income Tax Act,1961 mandated certain persons to deduct tax at the time of making payments. Government wants to earn taxes in advance rather than waiting for the assessee to file his return and pay the tax. TDS ensures early and guaranteed revenue generation to the Government. Also, it minimises the chances of tax evasion. There are different TDS rates specified by the Government for different types of payments. Payer shall deduct the applicable TDS and pay the balance amount to the payee.

Assessee can adjust the TDS against the tax liability for the financial year.

If TDS > Tax Liabilty	TAX REFUND
If TDS < Tax Liability	TAX PAYMENT (self-assessment)

TDS on employment:

Section 192 of Income Tax Act,1961 prescribes the guidelines for TDS on salary. Employer shall calculate the tax liability of the employee based on the declarations made by the employee. TDS is deducted at the time of making salary payment and the balance salary is paid to the employee. TDS deducted shall be deposited with Government according to due dates specified. Interest will be levied to the employer in case of late payment of TDS.

Employer shall file TDS return quarterly which contains details about PAN of employer, TAN of employer, PAN of employee, amount deducted against each PAN every month. In simpler words, TDS return is a form which specifies the TDS deposited against each PAN for each month.

Details of TDS will reflect in Form 26AS after the employer file the TDS returns.

FORM 16:

At the end of financial year, employer shall file a consolidated annual return mentioning the salary break-up and taxes deducted for each PAN. Upon successful filing, the employer shall be able to generate the form 16 for each PAN. Form 16 is a CERTIFICATE issued by the employer U/s.203 for the taxes deducted from the salary. Form 16 can be downloaded from TRACES. Form 16 can be generated by employer only after filing annual TDS return.

Form 16 contains 2 parts namely PART-A and PART-B.

CONTENTS OF PART-A

1. TDS CERTIFICATE NUMBER and DATE
2. TAN, PAN, ADDRESS of EMPLOYER
3. PAN and ADDRESS OF EMPLOYEE (as per PAN records)
   
4. Assessment year
5. PERIOD of EMPLOYMENT
6. SALARY PAID and TAX DEDUCTED for each QUARTER. (quarter shall mean Apr-June,  Jul-Sep, Oct-Dec, Jan-Mar)
7. Details of CHALLAN against which employer has made payment of TDS monthly
8. Details of employer filing and approving the TDS

Part-A provides details of TAX deducted at source (TDS) during the financial year.

CONTENTS OF PART-B

1. NAME and PAN of employee along with employee ID provided by employer.
2. GROSS SALARY
3. ALLOWANCES EXEMPT (they are computed based on the supporting documents provided by the employee like rent receipts, travel receipts, internet and food bills etc)
4. PROFESSIONAL TAX paid by employer on behalf of the employee.
5. ANY OTHER INCOME REPORTED BY EMPLOYEE (income from house property, income from business or profession,income from other sources).
6. DEDUCTIONS under CHAPTER VI-A (deductions are allowed based on the supporting documents furnished by the employee under Section 80C, Section 80D, Section 80U etc)
7. TAX LIABILITY 
8. TAX DEDUCTED AT SOURCE
9. FORM 12BA which mentions the details of salary paid as perquisites, amenities or profits in lieu of salary. ( Nature of  perquisites can be in form of accommodation, cars, helpers, interest free loans, free or concessional travel, gifts or vouchers, STOCK OPTIONS etc)
10. ANNEXURE to form 16- COMPOSITION of GROSS SALARY, allowances claimed and other incomes declared by employee.

The following flow chart depicts the process of computation of tax liability till filing of IT return.

POINTS TO BE NOTED:

• In case of multiple employments during a financial year, employee will receive multiple form 16s from respective employers.
• In case of NIL TDS, form 16 may NOT be issued by the employer.
• Form 16 acts as proof of tax.
• Form 16 can be provided by employer only. We cannot download it on our own from other sources. Hence, it is advised to save the form 16 in personal drive/e-mail every year.
  
• If the employer does not furnish the form 16, income tax return can be filed by computing the taxable income from the payslips provided and claiming the TDS available in 26AS. However, it is the responsibility of the employer to deduct TDS and issue the form 16 even if the employee had left the job.
• Previous employer shall provide the form 16 after completion of financial year ,despite the fact that the employee has left the job anytime during the financial year.
• Form 16 is a proof of tax but NOT a proof of return. It is mandatory to file the income tax return irrespective of receipt of form 16.

Understanding the form 16,

• It is a TAX DEDUCTION CERTIFICATE.
• Issued by the EMPLOYER.
• After COMPLETION of financial year.
• Contains details about SALARY and TDS.

Composed by

CA. Konda Mounika FCA,BBM,DISA