Decoding Form 16

Albert Einstein was perhaps right when he said, "the hardest thing to understand is the income tax". The numerous rules and regulations and income tax forms can still confuse the most seasoned taxpayers. Let us decipher one such form associated with income tax—let's decode Form 16.

What is Form 16?

Form 16 is a certificate provided by the employers to their employees as directed under Section 203 of the Income Tax Act. It catalogues particulars about how much salary an employee has drawn in a financial year and how much has been already subtracted from their remuneration towards tax deducted at source.

The official definition is:

Form 16 is a certificate issued U/S 203 of the Income-tax Act, 1961 for TDS on salary paid by an employer to an employee U/S 192 or interest or pension paid to a senior citizen U/S 194P.

Suppose your income is more than 2.5 lakh. Your employer deducts a certain percentage (as fixed by the Income Tax Department, Government of India) from your salary as tax deducted at source and deposits to the concerned department. If your annual salary is within the tax-exemption limit, no tax will be deducted at the source.

Form 16 should be duly filled in and furnished by the employee when filing the income tax return. The information provided in the certificate should be accurate. If you find any discrepancy in information, contact your employer immediately for correction. You may download form 26AS by logging into your account on the Income Tax portal and find out whether or not your employer has deposited the tax deducted at the source.

Components of Form 16

There are two components in Form 16:

Part A:

Part A of Form 16 puts forward information related to tax deducted at source and deposited to the government every quarter. Any employer can log in to the TDS Reconciliation Analysis and Correction Enabling System (TRACES) portal to generate and download Part A of Form 16. It contains the following details:

• Employer's name and address
• Employer's tax deduction account number (TAN)
• Employee's permanent account number (PAN)
• An overview of the quarterly deduction and deposition of tax

Part B:

Part B of Form 16 provides a detailed tax calculation of a salaried employee. It contains the following information:

• Tax calculation
• Gross salary of the employee
• Tax-exemption claimed
• Other sources of income declared by the employee

How is Form 16 different from Form 16A?

Taxpayers often get confused between the two forms, i.e. Form 16 and Form 16A. Although both are TDS certificates, they aren't the same. Form 16 deals with tax deducted at source on salary income, whereas Form 16A deals with tax deducted at source on income other than salary—such as tax deduction on income earned from a bank's fixed deposit.

Highlights:

The employer must issue Form 16 when tax is deducted from the employee's remuneration. According to Section 272A (2)(g) of the IT Act, if the company fails to issue Form 16 even after deducting tax at the source, the employer has to pay a fine of Rs. 100 per day till it issues the certificate.