Not mandatory but desirable. As you know IT Returns and/or IT clearances atleast for the last 3 yrs are being insisted for any purpose like bank loan, passports. school/college admission, claim reservations in CET/NEET etc. If form-16 not issued to your employer from year to year, after few years, if needed it's not easy to issue later. It's safe to issue Form-16 for both employees & employer irrespective of whether or not in the taxable bracket.