Understanding Form 16: Who Needs It and Why It's Important for You

Hi all, I want to know what the use of Form 16 is and for whom it is required. Please help me out with this.

Regards,
Vignesh

Hi,

If you are a salaried employee in an organization, you will receive your salary after tax deduction by the employer. This process is known as Tax Deduction at Source (TDS). Every company is required to have a Tax Identification Number (TIN). The TIN is issued to the person responsible for deducting tax on payments made to employees.

At the end of the financial year, the company must issue a Form 16 which includes details about the salary earned by the employee and how much tax was deducted. This form contains monthly details. Simply put, Form 16 provides information about the tax deducted by the employer on behalf of the employee, which is then paid to the government by the company. Many people believe that receiving Form 16 alone is sufficient for filing taxes. However, taxpayers must use Form 16 to file their income tax return at the end of each financial year.

Form 16 is issued by the company to an employee for whom the payroll tax has been deducted and remitted to the tax department on behalf of the employee.

Form 16 is a certificate issued by the company giving the details of the earnings by the employee and the tax deduction and remittance to the tax department. This needs to be used by the employee to file the individual income tax returns.

Hope this helps. Thanks, Showri

Hi,

Thanks, Garima and Showri. I hope you are the experts in the business. If possible, can you brief me on the process of filing returns? I am a fresher to the job, and I feel that knowing these details is extremely necessary for my role. I would indeed be thankful for the same.

Regards,
Vignesh. R

Dear Vignesh,

First of all, you should know some basic details such as:

1. Financial Year - Always starts from 1st April to 31st March. The current financial year is 1.4.10 to 31.3.11.

2. Tax deduction - The company has to deduct tax on a monthly basis if your income exceeds 1.60 Lakhs PA at the following rates:

- 0 to 1.60 lakhs - 0%
- 1.60 to 5 lakhs - 10% - Tax amount of Rs. 34,000
- 5.00 to 8 lakhs - 20% - Tax amount of Rs. 60,000
- Above 8 lakhs - 30%

If your taxable income is 8.50 lakhs PA, then the tax is calculated as 94,000 for up to 8 lakhs and then 30% of 50,000, which is 15,000. The total tax amount of Rs. 109,000 + Education cess of 3% on (109,000), i.e., 3,270 = 112,270/- would be deducted over a period of 12 months starting April.

During May 2011, the company will issue Form 16 showing the total income and total tax deducted and remitted to the Tax department.

You need to file the Income tax returns after receiving Form 16 from the company before 31st July 2011.

You can file your returns online through myitreturns.com or Online Income Tax Filing | Income Tax Returns | Income Tax Planning | Tax Savings | Income Tax Return Filing | Tax Filing Information | Tax Returns Services or any other portal, which is straightforward. You just have to replicate the information from Form 16 and submit it online. There is a nominal fee for the services provided by the portal. You can visit the portals to find out more details for filing the online returns.

Hope this helps...

Dear Vignesh,

The Education cess is a levy of tax by the Government of India, and this amount is exclusively used for development in the education sector. The percentage is decided by the Government and is reviewed on a yearly basis during the time of the Union Budget.

You should try to Google these things where you may get more information or a detailed explanation.

Thanks

Hi showri, thanks for providing such valuable information. I still have a doubt. I understood up to filing tax returns. After completing the filing of tax returns, what do we need to do? What is the purpose of filing tax returns? I lack full knowledge, which is why I am asking you.

Thanks & Regards,

Murali Krishna.

Thank you very much for all your appreciation. I am happy that it was useful to many of you.

As regards to one of the questions: what happens after filing the Tax returns, the answer is that the filing of Tax returns is an obligation on the part of every individual, corporate firms, and others who have income from various sources like salaries, income from business & profession, etc., to file the Income tax returns on a yearly basis.

This is to ensure that individuals & companies are disclosing their earnings/revenue/profit and also ensure payment of tax on the same.

If you pay the taxes regularly and do not file the returns, then how will the government know that you have paid the taxes correctly and also have disclosed the actual earnings/profits.

The Income tax returns are very useful in the future for any loans you may want to borrow from a bank, for applying for a passport, etc. Every bank will ask for Tax returns filed for the past 3 years in case you go for a loan.

Hope this helps.

Thanks,

Showri

showri.rajan@in.ey.com

+919900103820

Sir,

If Form 16 is not available, how can I fill my Income Tax Return? Tax deduction details are available in Form 26AS.

Total Yearly Earnings for FY 2009-2010:
- Basic Salary: 144000/-
- House Rent Allowance: 24000/-
- Project Allowance: 24000/-
- Food Allowance: 17450/-
- Overtime: 47633/-
Total: 257083/-

Deduction Details:
- Provident Fund Contribution: 9360/-
- Tax Deducted At Source: 1674/-
Total Deduction: 11034/-
Total Paid: 246049/-

As per the Salary Certificate provided by the company, if Form 16 is not available, how can I fill my Income Tax Return? Tax deduction details are available in Form 26AS.

Rakesh Kumar Thakur
Raigarh (Chhattisgarh)
Contact No: 9300788674

If an employee takes up a new assignment in another company during the financial year, i.e., let's say the person has joined a new firm w.e.f. 1st Oct '10, how about the Form-16? Should the person submit two Form-16s from both employers or a consolidated Form-16 from the last employer?

Hi,

From the current year, Form 16 is no longer needed. In fact, there is most likely going to be a circular from the tax department asking not to issue it. All TDS is now credited to the account of individual taxpayers identified by PAN number. You now need to go to the income tax website or NSDL website and register. After that, you can check your TDS credit at any time. Each quarter, after the company files its TDS returns, your account will reflect the correct balance.

The Income Tax Department no longer requires Form 16 with income tax returns. It is, in fact, ignoring all that is on Form 16 and only going by what's in your tax account (I think that's called 26AS). You should check and ensure that the TDS amounts deducted from your salary are reflecting in the account. Otherwise, you will have to follow up with your employer to get the same corrected.

If an employer has deducted the tax, it is mandatory for the company to issue the Form 16. This is required as per the Income Tax Act. You need to check with your company about your Form 16 and obtain the same. Without the Form 16, you will not be able to file the Income Tax returns since you will not be able to calculate the taxable income on which the tax has been deducted.

Regarding the question of someone joining during the financial year, let's say on 1st October 2010, the employee needs to submit the Income Tax calculation statement along with Form 12B declaring the previous employer's income to be considered while calculating the current employment payroll taxes. The payroll team has to consider the previous employer's income as well as the tax deduction and then calculate the tax.

While issuing the Form 16, the current employer can either remove the previous employer's income and then show only the current employer's income and the tax deducted at the current employment. This Form 16 will likely show a refund.

When the employee files their Income Tax returns, they need to add both the income and the tax deduction and then file the returns.

Thanks,

Showri

Form 16 is no longer compulsory. Instead, you need to register with the income tax department and check your TDS credit status online. In fact, the IT department has been sending out emails to assesses informing them of this. Towards the year-end, they are going to issue a notification stopping Form 16. Also note that they are no longer accepting Form 16 as a part of returns anymore.

"If an employer has deducted the Tax, it is mandatory for the company to issue the Form 16. This is required as per the Income Tax Act. You need to check with your company about your Form 16 and obtain the same. Without the Form 16, you will not be able to file the Income tax returns since you will not be able to make out the calculation for arriving at the taxable income on which the tax has been deducted.

As regards the question on someone joining during the financial year say 1st Oct 2010, the employee needs to submit the Income Tax calculation statement along with Form 12B declaring his previous employer's income to be considered while calculating the current employment payroll taxes. The payroll team has to consider the previous employer's income as well as the tax deduction and then calculate the tax.

While issuing the Form 16, the current employer can either remove the previous employer's income and then show only the current employer's income and the tax deducted at current employment. This Form 16 probably will show a refund. When the employee files his/her Income tax returns, he/she needs to add both the income and the tax deduction and then file the returns.

Thanks, Showri"