What is Form 16?

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Form 16 is a certificate from the employer that has details of salary paid to an employee and tax deducted at source (TDS) from his or her salary for the financial year. It has to be issued by the Employer to the Employee under Section 203 of the Income-tax Act, 1961. It has two sections—part A and B.

CBDT (Central Board of Direct Taxes) have notified new format of “Form 16 – The Salary TDS Certificate” requiring detailed breakup of all the tax exempted allowances provided to employees.Also it requires to showcase all the tax breaks claimed by employees.

Earlier format allowed companies to provide the consolidated figure for exemptions claimed , thereby leaving the ambiguity regarding individual compositions.

Last year taxman found various cases where false claims were being claimed by employees at the time of filing the return and thereby claiming large income tax refunds.

This is also one of the reasons, why government found need to streamline this process and to remove all such spaces for manoeuvres in future.

Special care while filing salary return.

Advice to all the salaried people would be to carefully file there returns and claim only for those investments as deduction which have been submitted to employer for TDS calculation.

There might be cases, where employees are not able to submit there proof of investments to their employers, in that case there employer would deduct TDS on higher side.

And in order to claim the refund of  TDS which have been deducted by employer due to non submission of investment proofs, employees will have to claim the investments as deduction while filing the return on the income tax portal, if that will be the case, there are chances that employees would get notice from income tax department seeking the mismatch in amount claimed in form 16 V/S claimed in return, if so happens then employees will have to justify there deduction by depositing the proof of investment to the income tax dept.

So it is recommended to claim only those investments as deduction for which you have the investment proofs

Changes in Form 16 for FY 2018-19

As per the changes notified, Form-16 issued by the employer will have to specify the nature of tax-exempt allowances paid to the employee.

The employer will have to specify the nature as well as amount of allowances which are exempt from tax. Similar details have also been asked for in this year’s ITR-1.” The revised format provides a list of allowances such as Travel concession or assistance under section 10(5), house rent allowance under section 10(13A) and so on that are exempt under the Income Tax Act.

The move is expected to make it easier for the department to cross check information from ITR-filed by the taxpayer, TDS returns (Form 24Q) filed by the employer for the tax deducted and Part-B of Form-16. Apart from making changes in the Form-16, the notification has made concurrent changes in the format of TDS returns filed by the employer for the tax deducted from salary paid to employees.

Following are key requirements of new “Form-16”:

  1. Detailed Salary Breakup
  2. Detailed breakup of exempted allowances under section 10 of Income Tax Act, 1961.
  3. Deductions allowed under the income tax act (under chapter VIA):

Specific fields are notified for deductions mentioned below:

  • Under Section 80C – Deduction for life insurance premium paid, contribution to PPF, etc.
  • Under Section 80CCC – Deduction for contributions to pension funds
  • Under Section 80CCD (1) – Deduction for employee’s contribution to the pension
  • Under Section 80CCD(1B) – Deduction for taxpayer’s self contribution to the notified pension scheme
  • Under Section 80CCD (2) – Deduction for employer’s contribution to the pension scheme
  • Under Section 80D – Deduction for health insurance premium paid
  • Under Section 80E – Deduction for interest paid on loan taken for higher education
  • Under Section 80G – Deduction for donations made
  • Under Section 80TTA – Deduction for interest income on savings account

Note: Similar breakup of exemptions under section 10 and deductions under Chapter VI-A, have been added in form 24Q i.e. TDS return filed by employer. Thus form 24Q has been bought in line with Form 16.

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