How to read Form 16 ? – Guide on Understanding Form 16
After the end of financial year i.e. 31st March of every year, salaried individuals get Form 16 from their employer consisting detailed salary breakup and tax deducted on salary. It might be confusing for many individuals to read and understand Form 16 as it contains some complex tax terms. So this post will help you in understanding what is form 16 and its importance in your income tax return filing.
What is Form 16?
Form 16 is a certificate issued by an employer to an employee which contains the details of salary credited, tax deducted and deposited on that salary. As per section 203 of the Income Tax Act, 1961, it is mandatory for an employer to issue certificate of tax deduction to the employee in Form 16. It is the proof that tax deducted by the employer has been paid to the Income Tax Department.
Understanding the structure of Form 16
Form 16 is divided into 2 two parts, Part A and Part B. Part A is a certificate of TDS deduction and Part B consist of details such as salary, deductions, other income, tax payable etc.
Part A is a tax deduction certificate. It is a proof that tax deducted from employee has been deposited with the Income Tax Department. It contains following details :
1. Name and Address of the Employer.
2. Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN) of the deductor (employer).
3. Name and Address of the employee along with his/her Permanent Account Number (PAN).
4. Period for which employee has worked for the employer and the applicable Assessment Year. In case employee has more than one employer and tax has been deducted (TDS), then separate Form 16 will be issued for each employer.
5. Quarter wise summary of amount paid and tax deducted at source of the employee. The details are quarterly because TDS statements are filed by deductor quarterly.
6. Details of tax deposited with Income Tax Department along with BSR code of the bank through which tax has been deposited, challan number and date of payment.
Part B contains the detailed break up of salary, deductions and tax payable. It list down following details:
1. Gross Salary consisting of basic pay, perquisites received and any profit in lieu of salary.
2. Allowances which are exempt under section 10 are deducted from gross salary.
3. Net salary chargeable to tax is calculated after claiming deduction of Entertainment allowance (in case of government employee) and professional tax.
4. If employee has other sources of income such as house property, interest income etc., it is advised to report it to the employer.
5. Salary income plus other income will result into Gross Total Income.
6. Deductions under section 80C, 80CCC and 80CCD to the extent of ₹ 1,50,000 and other Chapter VI-A deductions like donations (80G), saving interest (80TTA), Interest on Education loan (80E) etc., will be claimed from Gross Total Income.
7. Total Income or Net Taxable Income will be calculated.
8. Tax amount along with education cess and applicable surcharge is calculated based on tax slab rates.
Importance of Form 16
Form 16 is the most important document in filing your Income Tax Return. It serves as a proof that tax deducted has been paid to the credit of government and is also reflected in your Form 26AS.
Furthermore, it is also accepted as income proof for processing of loan from banks and other financial institutions.
It also helps you in understanding your salary structure which can further help you claiming exemptions/ deductions at the time of filing of return which your employer has omitted.
Frequently Asked Questions (FAQ’s)
I have not received Form 16 from my employer, what should I do?
Generally Form 16 is issued when tax has been deducted from your salary. It is common practice to issue even if no tax has been deducted. If tax has been deducted from your salary, it is the duty of your employer to issue certificate in Form 16. You should demand it from your employer in such case. Alternatively, you should check in your Form 26AS whether TDS has been deposited with the government.
My Tax has been deducted, but I have not received Form 16 and my Form 26AS does not show any entries, what should I do?
It is the duty of your employer to issue Form 16 and your right to get it. If your employer is not issuing Form 16 after deducting tax and it is not reflecting in Form 26AS, then it is possible that your employer has not deposited tax in government account. You must first inquire with the employer about the issue. If the issue is not resolved, you should report it to TDS division of the Income Tax Department.
My employer has deducted tax without considering the investments declared by me. Can I claim these investments as deductions at the time of Filing of Income Tax Return?
Yes, you can claim these investments as deductions while filing your Income Tax Return. Please make sure you have valid investment proof of all the deductions claimed you.
How do I file my Income Tax Return (ITR) without Form 16?
You can file Income Tax Return (ITR) even Form 16 is not available. In such case, you should refer to salary slips, bank statements and tax saving investment proofs to calculate your salary income. You should also check Form 26AS to confirm whether any tax deducted has been paid to the government.
I have two Form 16 from two different employers, what should I do?
It is possible to get two Form 16 if you had switched your employer during the year. Each Form 16 will be issued for the period served under each employer. You can calculate your salary income by combining both the Forms. It may be possible that both the employer have given the benefit of basic exemption limit. In such case, you can claim the benefit of basic exemption limit only once.
What is the difference between Form 16 and Form 16A?
Form 16 is certificate of tax deducted from ‘Income from Salaries’, whereas Form 16A is a certificate of tax deducted from income other than salary.
How to get Form 16 online?
Nowadays, digitally signed Form 16 are sent to employee through e-mail in a soft copy. However, one can also ask for physical copy as well.
If you have any doubts regarding taxation, you can ask by commenting below or by mailing us at [email protected]