A Complete Guide on Form 16

Tax Deduction at Source (TDS) under Section 192of Income Tax Act, 1961 (known as “the Act” in the article) which deals with the TDS on salary income under which itis mandatory that TDS is required to be deducted by the employer from the salary of the employee when the taxable income of an employee is Rs 2.5 lakh or above in a financial year and after deduction, It has to be deposited with the Income Tax Department by filing TDS returns on intervals. For informing, reporting in ITR and other purposes, the amount and particulars of TDS deducted & deposited, the employer has to provide its employees, the details of net salary payable, and the TDS deduction amount by issuing Form 16.

Form 16 also known as TDS deduction certificate is an acknowledgment for the employee stating the number of TDS deducted by his employer, the net salary payable after all deductions and exemptions, and the net salary receivable.

Form 16

Form 16 contains details of the salary breakup of the employee for a particular financial year. It serves as a proof that the employer has deducted the TDS amount from the employee’s salary and has deposited that deducted amount to the government.

Form 16 is divided into two parts:

Part A includes:

  • Name of the employee,
  • PAN of the employee.
  • Period of deduction ( usually, From 1 April to31st March)
  • Applicable Previous Year
  • Applicable Assessment Year (AY),
  • Name of Employer
  • Address of Employer
  • PAN of the employer
  • TAN of the employer
  • Commissioner of Income Tax Details ( As per jurisdiction)
  • Summary details of TDS deducted/paid.
  • Summary details of TDS deposited in Govt. Account
  • Details and amount of Challan for tax deposit for particular AY
  • Verification of details TDS deductor ( or authorized person)

Part B of Form 16 exhibits for the complete breakup of employee salary as follows:

  • Gross Value of salary ( Section 17(1), 17(2) and 17(3))
  • Exemption availed by the assessee under section 10
  • Deductions on account of
    • Standard deduction;
    • Entertainment tax;
    • Tax on employment
  • Any other income reported by the employee
  • Deductions under Chapter VI A ( Series of Section 80)
  • Details of Total Taxable Income,
  • Details of tax on total income (includes slab rate, surcharges, and cess @ 4% on taxable income)
  • Amount of Rebate Claimed (if any),
  • Amount of Relief Claimed ( if any)
  • The tax payable amount and/or Refund (as applicable)
  • Verification by TDS deductor ( or authorized person) of details mentioned are true, correct and complete

For accurate estimation of deductions and income of the employee, an employer has to obtain all related documents of insurance paid, expenditures, etc. made by the employee for an insurance policy, rent transaction receipts and other income & expenditure proofs for preparation of Form 16.

It is the duty of every employer to deduct TDS from the employee salary account and issue him a Form 16 under Section 203(2).

The due date for the issue of Form 16 by every employer is on or before 15th June (subject to change) of the assessment year.

Procedure for issue of Form 16 

After the deduction of TDS, the employer has to be filed online TDS return on a quarterly basis to the Income Tax Department by using FORM 24Q. Once the return is submitted, the figures of deductions and tax computed by the employer get reflected on the website. After which the employer downloads the generated Form 16 on the portal https://www.tdscpc.gov.in/app/login.xhtml ) and issues it to the employee.

Form 16 vs. Form 16A vs. Form 16B

For TDS deduction on employee salary income, Form 16 is issued for a salary income.

While FORM 16A is issued when TDS is deducted on income other than salary.

Form 16B is a tax deduction certificate issued to the seller of the property when TDS is deducted and deposited by the buyer one immovable property sale.

Uses of Form 16

Form 16 serve as a proof of TDS deduction. Form 16 is a basic document that is needed for the filing of ITR by a salaried person detailing about TDS deducted details as on date and the TDS deposited to the Govt.

Form 16 is evidence and trusted source for banks & financial institutions for verifying the income details of a salaried employee before approving any of the loan application.

Form 16 as a mandatory document, required where an employee applies for any VISA for any other country; it is required for obtaining Income Tax Clearance Certificate for VISA approvals

Penalties related to Form 16

  • For non-issue of Form 16 by the employer to the employee, a penalty, under Section 272A (2)(g)  of the Act imposed a  penalty of Rs. 100/ per day till default continues.
  • For the non-deduction of TDS, causing delay or non-issue of Form 16, the employer will be charged with the penal interest of 1% on the tax payable per month from the date from which the actual tax was to be deducted to the actual date of deduction under Section 201A.
  • For non-payment after deduction of TDS a, causing delay/incorrect issue of Form 16 deduction, a penalty interest of 1.5 % on the tax amount payable per month would be charged from the date of deduction to actual date of payment from the employer under Section 201(1A).
  • For failure or furnishes incorrect information in TDS return causing the incorrect  issue of Form 16, the penalty from Rs. 10,000 extendable to Rs. 1 lakh under Section 271H shall be levied.

The employer refused to issue Form 16?

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