Understanding Form 16 and its contents

As the tax filing season approaches, many salaried employees find it challenging to navigate the process on their own. In this article, we will understand Form 16—a crucial document provided by employers which is then used for filing your income tax on the portal. Form 16 serves as a certificate that outlines the tax deducted at source by the employer and is submitted to the Income Tax Department. It contains comprehensive information about the payments made to the employee and the corresponding taxes deducted and paid by the employer to the Income Tax Department on behalf of the employee.

Form 16 basically consists of two parts: Form 16 Part A and Form 16 Part B. Before we explore the contents of each part in detail. Let us see the common section that is available in both Part A and Part B.

Figure 1, illustrates the section common to both Part A & B and this section provides the details of both the employer and employee. The details are as follows:

1. Certificate Number: This unique 6 or 7-digit number represents your TDS (Tax Deducted at Source) certificate.
2. Last Updated On: This indicates the date when the final entries were made on your Form 16, typically after the end of the financial year.
3. Employer and Employee Details: This section includes the name, address, and PAN (Permanent Account Number) or TAN (Tax Deduction and Collection Account Number) of both the employee and the employer.
4. CIT Address: CIT stands for Commissioner of Income Tax, and this address corresponds to the CIT of the jurisdiction where the employer is registered.
5. Assessment Year: The assessment year refers to the year in which you file your taxes. For example, for the Form 16 you receive for the financial year 2022-23, the assessment year would be 2023-24 (not 2022-23).
6. Period with the Employer: This indicates the duration of your employment with the same company during the financial year. For example, if you have worked with the company from April 1, 2023, to March 31, 2024, this period will be mentioned.

Form 16 Part A:

Part A of Form 16 provides the details about the amount paid by the employer to the employee and the corresponding tax deducted and deposited to the Income Tax Department. Part A is further divided into two sections. The first section is a summary of the amount paid or credited to the employee and the tax deducted at source on this amount. This summary is arranged in a quarterly format, as illustrated in the figure below:

The table above provides the details of the amount paid by the employer to the employee during each quarter and the corresponding tax deducted from the salary. The "Amount of tax deducted" column represents the amount deducted from the employee's salary, while the "Amount of tax deposited/remitted" column indicates the amount deposited to the Income Tax Department by the employer.

It is important to note that the figures in this table are for illustrative purposes only and may vary based on individual circumstances. The actual values will be specific to each employee's earnings and tax deductions for the respective quarters.

The second section gives the details of the tax deducted and subsequently deposited in the central government account. The transfer of tax amount can be done through either book adjustment or challans, depending on the company’s procedures. However, it is common for most companies to do it through challans.

As shown in the figure, details about the the tax deposited through every book adjustment/challan and the details of the receipt/challan are provided in this section. The "Challan serial number/Receipt No.s" column denotes the unique identification number for each challan or receipt. The "Date" column indicates the date when the payment was made, and the "Tax deposited" column shows the corresponding amount deposited in INR. The last column “Status of matching with OLTAS” could be U for Unmatched meaning the taxes have not been deposited or incorrect particulars have been furnished, P for Provisional meaning provisional tax has been credited and upon verification it shall change to F, F for Final meaning the payment details have matched or O for overbooked meaning the payment details have matched but the amount is over claimed in the statement.

Form 16 Part B:

Part B of Form 16 provides detailed information about the salary paid to the employee and the tax deducted on this salary, including any exemptions or deductions if applicable. It also includes information about the employee's chosen tax regime, whether it is as per the new regime or the old regime, as indicated in Section 115BAC. The employee can find their tax regime option under Annexure I in Part B of Form 16. If "Yes" is indicated for “Whether opting for taxation u/s 115BAC”, it means the employee has opted for the new tax regime; otherwise, it indicates the old regime.

Part B of Form 16 consists of 19 heads, each of which plays a significant role in computing an employee's taxable income. However, it is important to note that not all heads may be filled by the employer. Employers will only include those heads for which employees have made declarations or provided the necessary information. If certain components are not filled by the employer, employees are responsible for declaring them during their tax returns and subsequently claiming any applicable rebate or paying any excess taxes. Let us now start exploring each of these heads beginning with head 1.

Head 1: Gross Salary:

The Gross Salary head gives you the in detail salary paid by the employer during the Financial year along with any other benefits both monetary and non-monetary extended to you as part of your CTC. The table below gives you the details about what these constitute of.

Head 2: Less, allowances exempt under section 10:

For the purpose of calculating taxable income there are three sections under which you can reduce your gross salary. One such head is Section 10 available in the income tax act. Any income falling under the specified exemptions mentioned in Section 10 is not subject to taxation. The purpose of these exemptions is to provide relief to taxpayers and promote certain activities or investments. The table gives you all the details pertaining to this head.

Head 3: Total amount of Salary received from the current employer:

This head gives you the net taxable income after excluding the eligible exemptions under section 10 from your gross salary. This can be calculated as given below:

Total amount of salary received from current employer = Total of Gross Salary - Total amount of exemption claimed under section 10 = 1 (d) - 2 (h)

Head 4: Less, deductions under section 16:

Section 16 under the income tax act provides deductions on your gross salary under three sub heads: Standard deduction, entertainment allowance & reimbursement of professional tax. The details are provided in the table below:

Head 5: Total amount of deductions under section 16:

This head basically gives you the net deductions under section 16.

Total amount of deductions under section 16 = Standard deduction under section 16(ia) + Entertainment allowance under section 16(ii) + Tax on employment under section 16(iii) = 4 (a) + 4 (b) + 4 (c)

Head 6: Income chargeable under the head "Salaries":

This head gives you the net taxable income of all your reported salaries after excluding the eligible exemptions under section 10 and 16 from your gross salary.

Income chargeable under the head "Salaries" = Total amount of salary received from current employer - Total amount of deductions under section 16 = 3 + 1(e) - 5

Head 7: Add: Any other income reported by the employee under as per section 192 (2B):

This head deals with any additional income that you might have accrued during the financial year. It could range from income from rent from house property to interest on savings account/fixed deposits. The details of these are given below in the table.

Head 8: Total amount of other income reported by the employee:

This is the sum of Income from house property and Income under the head other sources as mentioned in section 192(2B) which was explained above.

Total amount of other income reported by the employee = Income (or admissible loss) from house property reported by employee + Income under the head Other Sources = 7 (a) + 7 (b)

Head 9: Gross total income:

The gross total income is given by:

Gross total income = Income chargeable under the head "Salaries" + Total amount of other income reported by the employee

Head 10: Deductions under Chapter VI-A:

Chapter VI-A of the income tax act is designed to encourage savings, investments and certain expenses while providing relief to the tax payers. This id one by reducing the gross total income for the investments/expenses made under this head. The details are given in the table below:

Head 11: Aggregate of deductible amount under Chapter VI-A:

This head gives you the total of all the eligible deductions as per chapter VI-A of the income tax act which was explained under the previous head.

Aggregate of deductible amount under Chapter VI-A = 10 (d) + 10 (e) + 10 (f) + 10 (g) + 10 (h) + 10 (i) + 10 (j) + 10 (l)

Heads 12 - 19:

Heads 1-11 gave us insights about the possible income and the deductions for saving tax. Heads 12 - 19 are all mentioned in the table below and can easily be calculated based on the explanation given.

These are the essential details one must know about Form 16 before beginning to file their income tax returns. It is important to note that not all the heads mentioned above may be filled when your employer provides you with Form 16. Only those heads will be filled which you have declared to your company. It is advisable to declare as much as possible at the beginning of the financial year to your employer to make the filing process easier. However, even if certain details are not declared, you can still file your returns as long as you have all the necessary information. In the next article, we will explore how to file your returns on the portal using Form 16.

References

Thumbnail Image Reference: Credits: Indialends

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