What is Form 16? Is it necessary to file an income tax return?
Form 16 is one of the most essential tax forms for salaried employees. It streamlines the process of filing your ITR as it contains most of the information required for preparing your income tax returns. Since the majority of us are salaried employees, it is essential for us to know about it and how it works.
Here’s a complete guide to what Form 16 and why is it necessary to file income tax return.
What is Form 16?
It is a certificate issued by employers to salaried employees under Section 203 of the Income Tax Act, 1961. It contains details about the salary paid to the employee and the tax deducted at source (TDS) on the salary. It also has details like salary income, tax deductions, when it was submitted to the income tax department, and taxes paid during a financial year.
Importance of Form 16
The Form is a proof of tax deducted at source (TDS) by the employer from an employee’s salary. This form helps in assessing a person’s tax liability and helps them file their ITR.
It also contains details of how your tax was computed based on your investment decisions made at the beginning of the year.
Eligibility
All salaried people who fall under the taxable bracket are eligible for Form 16. Particularly, people whose tax has been deducted at source by the employer are eligible to get the Form.
The company is not obligated to provide Form 16 to the employee if an employee’s income does not fall within the tax brackets.
Components of the Form
It has two major components:
Form 16A
Form 16A covers the basic details of the employer and employee, like:
- Employees Name
- Employees Address
- Employe’s PAN (Permanent Account Number)
- Employer’s PAN (Permanent Account Number)
- Employer’s Name
- Employer’s Address
- Employer’s TAN (Tax Deduction and Collection Account Number)
- Summary of TDS deducted and deposited.
It also has details of the amount of tax deducted, dates when the amount was deposited into the central government account, and details of the challan issued by the government.
Form 16B
It consists of a detailed breakdown of how your tax was computed with consideration of your investment decisions made at the beginning of the financial year, along with a proof of investment. It also includes details of the allowances provided by the employer, which might be necessary for computing your tax. Other details like house rent, medical bills, EMIs paid towards housing loans must be mentioned.
The details include:
- Gross salary
- Exemptions u/s 10
- Tax on employment
- Deductions u/s 80c
- Deductions under other sections 80E, 80G, and 80TTA
- Tax on total income
- Any cess
- Any tax rebates
- Any surcharges
Difference between Form 16, 16A and 16B
- Form 16: TDS Certificate for only salary income
This is a certificate of TDS (Tax Deducted at Source) issued by an employer to their employees. It contains details of salary paid to the employee and TDS deducted on it. It is issued annually, summarizing the TDS deducted from the employee’s salary throughout the financial year. It is primarily for salaried individuals. - Form 16A: TDS Certificate is for other than salary income
This is also a certificate of TDS, but it is issued for TDS deducted on income sources other than salary. For instance, if TDS is deducted on interest income from fixed deposits, rent, etc., It is issued by the deductor (e.g., bank, tenant) to the deductee (e.g., account holder, landlord). It is also issued annually. - Form 16B: TDS Certificate is for Sale of Property
This is a certificate of TDS on sale of property and is relevant for individuals involved in real estate transactions. When a buyer purchases immovable property (other than agricultural land), they are required to deduct TDS at the rate of 1% (as per the current tax laws) before making the payment to the seller. It is issued by the buyer to the seller as a proof of such TDS deduction. It provides details of the TDS deducted and deposited with the government.
Form 16 Benefits
Form 16 functions as your proof of “income from salary,” which can be used in multiple instances, including:
- Filing ITR
- Proof of income
- Loan assessment and approval
- Visa issuance
- Document stating how tax was computed
- One place to document all tax-saving investments.
Is Form 16 necessary to File Income Tax Return?
While Form 16 significantly simplifies the ITR filing process for salaried employees, it is not mandatory.
If Form 16 is not available, salaried employees can use the following documents to file an ITR:.
- Salary slips
- Bank Statements
- TDS Certificate from the Bank
- Proof for HRA, LTA, etc.
- Form 26AS
- Proof of investments for eligible deductions under Section 80C, 80D, etc.
- Annual Information Statement (AIS)
- Taxpayers’ Information Statement (TIS)
You need to calculate your taxable income by considering all income sources, including salary, interest income, rental income, capital gains, and any other applicable sources. Deduct eligible deductions and exemptions. You can file under the ITR-1 or ITR-2 form, subject to other income sources, if you are filing without Form 16.
Form 16 is an important document; it not only simplifies the ITR filing process for employees but also acts as proof of income and is used for various purposes. It gives a clear snapshot of employees’ financial affairs, like income, deductions, etc.
So it is essential to have a good understanding about the income tax Form 16 and its intricacies. While it smooths the process, there are alternative methods to file an ITR for those without Form 16.