Understanding Form 16: Downloading PDF and Tax Implications

Hello Friends,

I am an HR in an IT firm and have a query related to Form 16. An employee is serving his notice period in our company, and he is asking us to provide him Form 16 as he will show it in another company where he is selected. However, our company is not deducting TDS, even though his salary is 36K per month. I know that he is liable for TDS deduction.

What should I do in this case? Should I issue him Form 16 or not?

If yes, kindly share with me the format of the same.

Thanks & Regards,
Ruchi
HR

Hi Ruchi,

If any employee receives taxable income above ₹2,50,000 per annum, then the company is liable to deduct tax from the employee and remit it to the Income Tax department. Since you mentioned his salary as 36K, he is certainly a taxable employee.

If you have already deducted TDS, then it is your responsibility to issue Form 16. If you have not deducted it, then issuing Form 16 is optional.

Thank you.

Hi Ruchi,

Why is the employee asking for a TDS certificate (Form 16) when no TDS was deducted from his/her salary? However, it is your company's fault not to deduct TDS. Also, the 30% of the salary portion shall be disallowed under section 40(a)(ia) in income tax. You have two options now: either be ready for the 30% disallowance or deduct the TDS immediately and remit the same to the government to avoid the 30% disallowance. After that, you can revise the TDS return with the appropriate quarter, and then you can download Form 16 from the TDS CPC side.

Let us get the first point very clear. Form 16 can only be issued if TDS has been deducted from the employee's salary.

Further, there is no option for you to issue a TDS certificate manually. The tedious certificates are now electronically generated on the income tax website, which you have to download and forward to the concerned person.

So, if you have not deducted the TDS, you cannot issue a Form 16. If the TDS amount is lower than his full and final settlement, you can adjust the amount from him. If there is no amount due to him or if the amount due is much less than the TDS amount, you better take the matter up to the top management and ask them what you need to do.

The impact of non-deduction of TDS has been explained in the post above.

Form 16 can be claimed by any employee, whether TDS is deducted or not. Sometimes, Form 16 is used as a salary certificate, and in that case, Form 16 (Part B) can be generated and issued even if there is no deduction. A proactive HR always keeps track of who shall insist on Form 16 even if they do not have taxable income. In this case, you can ask the gentleman to provide his savings details for that particular FY and compute if his income falls under the taxable bracket. If the taxable income still attracts tax, then you can ask the gentleman to pay the tax amount to you (of course with interest at 1.5% per month) and deposit the same with the department, revise the return, generate Form 16 from the department, and issue it. If the gentleman is not willing to pay the tax or the interest portion, you may explore issuing a Salary certificate in lieu of Form 16, with consultation from your accounts department/seniors.

Thanks & regards

As Asru mentioned, the company has to issue Form 16 whether it is taxable income or nontaxable income. However, you have to ask the employee to submit the investment proof, if any.

Regards, Narayan Patil

Ashu, Narayan,

Both of you are misinformed. Form 16 is an official and statutory document. You are not allowed to issue it at your whims and fancy. In fact, as the law stands today, you cannot issue Form 16 at all. It is issued by the income tax department, and you can only download and forward it to the concerned employee. Ask your auditor, and they will confirm the same.

Also, you cannot make your salary certificate look like Form 16. You can be prosecuted for fraud by the income tax department. The rules you are referring to were considered acceptable about 10 years ago, but the current law is different.

Dear Ruchi,

As per your query, it is clear that the employee comes under the tax liability. It is the employer's responsibility to provide Form 16 if the employer has deducted the TDS. You have to take an undersigned from that employee about his savings, and on the basis of that, deduct the tax and issue him Form-16/TDS computation sheet.

Thanks,
Shubham

Actually, Saswata Banerjee, you are the one misinformed.

Form 16 comes in two parts: Form 16 Part A, which has to be downloaded from the Income Tax website and is issuable only if TDS has been deducted and paid into the credit of the employee's PAN.

Form 16 Part B is prepared and issued to all employees of the company.

So, every employee has to get a Form 16 Part B, while those employees whose TDS has been deducted will also receive a Form 16 Part A.

Employers are not obliged to issue Form 16 if no TDS is deducted. Form 16 comprises two parts: A and B. Part A can be downloaded from the TRACES site, while Part B is to be filled in by the employer with details such as salary, etc.

Suhas,

For Form 16, Part B is an annexure to Part A. If you do not have Part A, how can you have Part B? You are not allowed to create Part A. Therefore, while the employee can be given a salary certificate containing details provided in Form 16, Part B, you cannot issue Form 16 to the employee.

Regarding Mr. Ray's point that the company is liable for deducting TDS, I am not disputing that. Of course, they need to check and ensure that his salary is taxable, which depends on the salary breakup, investments he has made, etc.

Dear Mr. Saswata,

Could you please clarify the following scenario.

A. An employee is having a taxable salary income, but computation with his savings details shows that it is becoming non-taxable. What document will you issue to the employee to substantiate that he doesn't have taxable income?

B. An employee doesn't have taxable salary income, but he is earning from other sources, such as house property income or some business, and altogether his income becomes taxable, requiring him to submit an income tax return. In this case, what document will you issue to substantiate that no tax has been deducted at the hands of the employer?

Thanks & regards

Hi @Asru,

After computation with savings details and no tax payable, there is no need for any document to be issued to the employee.

Many companies will not consider other income besides the salary when calculating TDS, and not all employees will declare other income to the employer. If the income received from salary is not taxable, then it is the employee's responsibility to compute and remit the tax to the IT Department. There are very few companies where they will ask the employee for other income, and if the employee declares it, TDS shall be calculated on the total income, and if payable, then deduct TDS and remit. Later, you can issue Form 16.

Thank you.

Dear Asru,

If the company is paying taxable salary to any employee, the company will ask the employee to provide details of other income and savings. The employee will furnish the details in Form 12B, duly signed. However, after considering the savings, if no tax is payable, there is no need to issue any documents to the employee. Just keep Form 12B along with the savings proof to demonstrate no tax liability.

Please remember that neither Part A nor Part B of Form 16 can be generated from the TDS CPC side if no TDS was deducted. To download Form 16, first deduct the TDS, remit the same to the government, file the return, and then you can download Form 16. It cannot be done before that.

Warm Regards,
Devesh Chauhan
Practicing in Accounts, Finance, Taxation, Labour Laws

Hi Asru,

I thought I had posted the reply but apparently it didn't register. I was traveling and didn't verify.

You have already received replies to your query. Let me still add some points.

1. Basically, the company is liable to deduct TDS on the salary paid by them. However, TDS is based on taxable income and not purely salary, so they are required by law to take that into account.

2. As a practice, the company is required to ask the employee to submit details of other income and of investments or expenditures that affect taxable income (e.g., housing loan, mediclaim, LIC, PPF).

3. Based on the above, HR or accounts will compute the tax due and ask the payroll team to deduct that evenly throughout the year.

4. In January and February, the company should ask the employee to provide proof of what he has actually spent. If there is a difference between what he claimed and what he actually spent, the differential TDS needs to be adjusted in the remaining months.

So, if the employee has taxable salary but has provided proof that he invests in a way to reduce the liability, then don't deduct TDS. Keep the records, including verification of payments. There is no need to provide the employee with any document to prove it. The income tax department does not penalize employees for TDS shortfalls.

If the employee has less than taxable salary, then it depends on what the employee wants. He can separately pay his advance tax. In this case, he does not need to inform the company. If he wants it to be a part of TDS, he can disclose the same to the company, and the company can deduct and pay higher TDS.

Dear all,

Thank you all for responding to my post dated July 1, 2016 which was basically a continuation of my original post dated June 15, 2016 in regard to whether TDS certificate (Part B) can be issued to such employee who doesn’t have taxable salary income. It is necessary to inform you all before I respond to the points made by you that “Form 16 Part B can not be generated from TRACES Portal. It has to be prepared manually by employer even in case of Tax deducted. Only PART A can be generated from TRACES Portal.” I refer circular No. 4/2013 [F.No.275/34/2011-IT(B)]. Dated 17-4-2013 point No. 2.4, in that regard. You will find software is available in the market to generate Part- B. In view of the above, if we start discussing whether we can issue a Part B to any employee on demand who doesn’t have taxable salary income, the answer is YES, since it has to be prepared by the employer only and I think doing that employer will never be prosecuted as expressed by some of the member.

Mr. Jeevarathnam P – I never asked employer to compute an employee’s tax liability combining his Salary income with his Income from other sources and deduct Tax. I only wanted to know how that employee can prove his quantum of salary income while he will file his return on his own since he is having income from other sources. I agree with your view that there will be hardly any company willing to compute total Tax liability of individual employee and in fact I believe employers are permitted to deduct TDS on income under salary head only, as per the provision of the section 192B. I welcome expert view on this issue.

Mr. Devesh Chauhan _ Are you sure that Form 12B is the format where an employee disclose his other income and saving details to the employer. As far as I understand that Form 12B is the format for the new employee joined with a new employer in mid of a FY shall submit Form 12B which consists of his income details with his previous employer and there is no scope to declare his other income if any. Kindly confirm if I am right. A copy of the Form 12B is enclosed herewith for your ready reference.

Mr. Saswata – Hope now it is clear that Part B can be issued without any complications to any employee on demand, irrespective of tax deducted or not as far as salary income is concerned. I refer the post of CA Nilay Shah on June 11, 2013 in this regard.

I wonder how an accountant will maintain his books of accounts as advised by you. Suppose an employee is having a combined income of Rs. 9.25 lac out of which income under the head salary (which includes salary, bonus incentive etc.) is Rs. 3.25 lac and Rent received Rs. 6.00 lac declared to employer as suggested by you. This employee has submitted his savings details u/s 80C (PF, LIC etc.) Rs. 1 lac and mediclaim Rs. 7000.00. How the taxable income will be computed and how much TDS will be deducted on his combined income. A few queries are also coming as under.

a) How his Rental income shall be collaborate in to his salary income.

b) Under which section/s TDS will be deducted and what will be the percentage of such deduction. Salary TDS comes u/s 192B and Rent comes u/s 194I. Will you issue 2 separate TDS certificate both Form 16 and Form 16A.

b) How the rent received personally by the employee from third party shall be booked in the company books of accounts, then payment entry as rent paid to the employee and TDS deducted @ 10%. Or otherwise how this TDS on rent (received by the employee personally) shall be deposited and accounted in the company books of accounts.

Could you please clarify since I am not good in accounts.

At the end somebody may think it is not worth writing so vast and it is wasting of time, but I think everybody should be very careful to post anything so that a wrong message should not pass since it is a public forum and lot of people are learning lot of things as I used to do.

Thanks & regards to all.

Since you are not willing to accept that this is the actual requirement of the law, it makes no sense for me to post further on this.

I suggest you speak to your auditor or an independent CA, take his advice and inputs, and proceed.

Hi,

My views and experience regarding Form 16 are as follows:

1. Employers are supposed to file an annual return of salaries paid to their employees exceeding the taxable limit, which is presently 250,000.00, whether TDS is deducted or not. The information includes gross salaries.

2. Employers can download Form 16 from the Traces Portal for all employees for whom the return is filed, regardless of whether TDS was deducted.

3. I have attached one Form 16 where the gross salary is 367,200, no TDS was deducted, yet Form 16 was generated and downloaded from the Traces Portal. This attachment supports my views, with some identity information concealed.

4. If necessary, Part B can be prepared manually and attached to Form 16.

5. If employees require it, a salary certificate should be issued.

Thanks and regards,
V K Gupta

Dear VK Gupta,

An employer is not supposed to file an annual return computation under section 192B. The computation shall be made annually, but the TDS statement shall be filed quarterly under section 200(3) of the Income Tax Act. We cannot issue TDS certificates; we can only download them from the TRACES portal. Once we file the TDS statement, the Income Tax Department will provide the TDS certificate Form 16 under section 203 of the Income Tax Act. However, any part of Form 16, whether A or B, cannot be issued manually. If anyone does so, it will not meet the definition of a TDS statement.

Mr. Asru,

Your view regarding Form 12B is also correct. Form 12B is not mandatory, and no employer can insist that an employee furnish Form 12B. Employers can accept declarations of income and investments written even on plain paper, along with documentary proof duly signed by the employee. In most cases, employees do not furnish other income details. Regarding combined income, there is no need to book rent received by the employee in the books of accounts. Form 16A does not need to be issued; section 194I will be applicable to the rent payer if the threshold limit is crossed. The rent payer will then be liable to deduct TDS under section 194I. Do not be confused about maintaining books of accounts and computing combined income.

Remember, TDS is part of the Income Tax Department's regulations. We must follow the process as per the income tax guidelines, not based on our preferences. We cannot issue TDS certificates, either electronically or manually; they will be issued by the Income Tax Department under section 203. We can only download them after the employer furnishes the TDS statement under section 200(3).

I hope this clarifies things for you. If you have any doubts, feel free to reach out.

Warm Regards,
Devesh Chauhan
Practicing in Accounts, Finance, Taxation, Labour Laws

Dear Mr. Devesh Chauhan,

I would like to state that neither I am confused nor I have any doubt on the post I have made on July 9, 2016. The question was put in the forum that whether an employer can issue Form 16 Part B (Annexure) to any employee on demand or not. My answer is YES, YES AND YES. It is unfortunate that some of the members tried to divert the issue with so many irrelevant things like Form 12B, Advance tax payment, declaration to employer etc. I would request all of you to consult the circular No. 4/2013 [F.No.275/34/2011-IT(B)]. Dated 17-4-2013 point No. 2.4 in accordance with the provisions of Section 203 of the Income Tax Act 1961 read with the rule 31 of the Income Tax Rules 1962 – regarding. It is the same act as mentioned by you Mr. Chauhan and I am sure once you read the circular (point No 2.4), your conception on issue of Form 16 Part B (Annexure) will be over and there will be no confusion / doubt in your mind for further consultation. A copy of the said circular is enclosed herewith for your ready reference.

Thanks & regards

I don't know what Ms. Ruchi Duseja would have learned to solve her simple problem from the contradictory replies of the members to each other. In my view, most of the responses have led to controversies and complications that could have caused confusion in the minds of several members of this forum. Some members say Form 16 should not be issued, others say it should be issued, and some others say Form 12B should be issued.

No doubt, healthy discussion can help members enhance their knowledge, but not discussions that create more confusion due to replies made merely on the guesses of some members who are not aware of the statutory provisions of the law and rules. So far, 638 members have viewed this query and the answers. Needless to mention, they would have been more confused than learned something out of the controversies created by the varieties of answers.

In fact, members who are unsure about the statutory provisions should not have participated in answering the query merely based on their guesses to make the discussion more controversial. That does not help enhance the knowledge of anyone but rather confuses their minds about the provisions of the law.

Naturally, it was not a question of procedures and practices that could have been solved by the varied personal experiences of the members to enhance the knowledge and skill of members.

As for the answer to the question, provisions about TDS certificate in Form No. 16 are very clear that it has to be issued annually, not at any time between the AY or FY.

So, there is no question of issuing Form 16 to the employee after the payment of salary for only three months. At most, the employee can ask for the certificate of salary, perks drawn, and deductions made out of his emoluments to help him submit his salary particulars of those months to his new employer. Form 16 would be issued only by the new employer by 31st May of the year after the close of the salary year/financial year.

I am ill-equipped to carry forward the discussion any further, other than to state that in Government offices, while an employee transferred from one office to another in the middle of the financial year, from 16 is issued by the DDO who disbursed the last salary (of the FY) taking into account the deductions effected by him as well the deductions effected by the previous DDO as reflected in the Last Pay Certificate.

I am also reproducing Rule 31 of the Income Tax Rules relevant to the issue:

31 . (1) The certificate of deduction of tax at source by any person in accordance with Chapter XVII-B or the certificate of payment of tax by the employer on behalf of the employee under sub-section (1A) of section 192 shall be in—

(a) Form No. 1687, if the deduction or payment of tax is under section 192; and

(b) Form No. 16A if the deduction is under any other provision of Chapter XVII-B.

(2) The certificate referred to in sub-rule (1) shall specify:—

(a) valid permanent account number (PAN) of the deductee;

(b) valid tax deduction and collection account number (TAN) of the deductor;

(c) (i) book identification number or numbers where deposit of tax deducted is without production of challan in case of an office of the Government;

(ii) challan identification number or numbers in case of payment through bank;

(d) (i) receipt number of the relevant quarterly statement of tax deducted at source which is furnished in accordance with the provisions of rule 31A;

(ii) receipt numbers of all the relevant quarterly statements in case the statement referred to in clause (i) is for tax deducted at source from income chargeable under the head "Salaries".

(3) The certificates in Forms specified in column (2) of the Table below shall be furnished to the employee or the payee, as the case may be, as per the periodicity specified in the corresponding entry in column (3) and by the time specified in the corresponding entry in column (4) of the said Table:—

TABLE

Sl. No. Form No. Periodicity Due date

(1) (2) (3) (4)

1. 16 Annual By 31st day of May of the financial year immediately following the financial year in which the income was paid and tax deducted.

2. 16A Quarterly Within fifteen days from the due date for furnishing the statement of tax deducted at source under rule 31A.

87a [ (3A) Notwithstanding anything contained in sub-rule (1) or sub-rule (2) or sub-rule (3), every person responsible for deduction of tax under section 194-IA shall furnish the certificate of deduction of tax at source in Form No.16B to the payee within fifteen days from the due date for furnishing the challan-cum-statement in Form No. 26QB under rule 31A after generating and downloading the same from the web portal specified by the Director General of Income-tax (System) or the person authorised by him. ]

(4) If an assessee is employed by more than one employer during the year, each of the employers shall issue Part A of the certificate in Form No. 16 pertaining to the period for which such assessee was employed with each of the employers and Part B may be issued by each of the employers or the last employer at the option of the assessee.

(5) The deductor may issue a duplicate certificate in Form No. 16 or Form No. 16A if the deductee has lost the original certificate so issued and makes a request for issuance of a duplicate certificate and such duplicate certificate is certified as duplicate by the deductor.

(6) (i) Where a certificate is to be furnished in Form No. 16, the deductor may, at his option, use digital signatures to authenticate such certificates.

(ii) In case of certificates issued under clause (i), the deductor shall ensure that—

(a) the provisions of sub-rule (2) are complied with;

(b) once the certificate is digitally signed, the contents of the certificates are not amenable to change; and

(c) the certificates have a control number and a log of such certificates is maintained by the deductor.

87b [ (6A) The Director General of Income-tax (Systems) shall specify the procedure, formats and standards for the purposes of generation and download of certificates and shall be responsible for the day-to-day administration in relation to the generation and download of certificates from the web portal specified by him or the person authorised by him. ]

(7) Where a certificate is to be furnished for tax deducted before the 1st day of April, 2010, it shall be furnished in the Form in accordance with the provisions of the rules as they stood immediately before their substitution by the Income-tax (Sixth Amendment) Rules, 2010.

Explanation.—For the purpose of this rule and rule 37D, challan identification number means the number comprising the Basic Statistical Returns (BSR) Code of the Bank branch where the tax has been deposited, the date on which the tax has been deposited and challan serial number given by the bank.]

As scuh, in my considered opinion, that the suggestions from Mr.P.S.Dhingra settles the issue.

Dear Shri Venu,

In your own post under the heading "TABLE", as against the very 1st serial, the text appears as follows:

"1. 16 ANNUAL By 31st day of May of the financial year immediately following the financial year in which the income was paid and tax deducted."

Would you please clarify what that means? Also, could you enlighten the members on whether the practice of issuing Form 16 for part of the year is still valid after the 1st day of April 2010?

In my view, there is a difference between practice and prescribed procedure. However, it would be a source of additional knowledge for the members if you could please list some Government offices that adopt the practice of issuing FORM 16 (not LPC) for part of the year.