Understanding Form 16: Importance, Content, and Legal Implications

Hi guys, I have tried finding out about Form 16 on the net but I couldn't find anything very informative. Is there something that tells all about Form 16? Can one of you please help?

What I know about Form 16 is that it tells us about the previous company of the employee, their salary details, and other information like increments, tax rebates, etc. Is there anything else to it? And why is Form 16 necessary?

What is Form 16?

As you all know, it is the most important form and regularly used by us. Form 16 is a certificate issued to you by your employer stating the details of the salary you have earned and the tax deducted on your behalf and paid to the government.

If you are an employee of the company (which means you are on the company's payroll), you should receive your Form 16 by April 30 every year.

Form 16: Form 16 is issued under Rule 31(1)(a) of the Income Tax Rules issued by the Government of India under the Income Tax Act, 1961 provisions.

It is issued by an employer to an employee at the end of every financial year detailing therein salaries earned by him during that year, the savings done by him which are permissible deductions under Section 80C of the Act, and the income tax deducted from him during the year and deposited in Government accounts.

A summary of details of such forms issued by every employer is sent to the Income Tax Department at the end of the year, detailing therein the employee's name, his PAN, his emoluments, the tax deduction from him and deposited in Government accounts at the end of the financial year (before 30th June of the succeeding year).

With the help of this return in summary form, the IT Department is able to know particulars of employees who worked under that employer. This information is correlated with the information published by the employees when they file their tax returns.

Significance: This is the only authenticated document to show your income/earnings to the outside world. Like; Banker, housing loan institutions, income tax department, etc.

This will be required while processing your Visas. This is a very important document for obtaining Income Tax Clearance Certificate (ITCC) from the income tax department at the time of migration to another country. Form 16 is the only proof that you have paid income tax for your earnings.

Consequences: It's a crime if you fail to file the income tax return, and that person will be liable for punishment and also liable to pay a penalty of Rs 5,000 and simple interest of 1.25 percent per month on the tax that he/she has not paid if you fail to file your return of income by the end of the assessment year.

He/she will not be allowed to revise their delayed returns; even if they discover any errors later, they will not be allowed to carry forward losses for a set-off in the future.

They could be prosecuted for failing to furnish your returns and could become a candidate for scrutiny, or even a search-and-seizure exercise by the tax department.

Above all, don't forget to apply for a PAN (permanent account number) in the first year that you become liable to file returns. If you don't, you could end up paying Rs 10,000 as a penalty.