Form 16 is the most essential form, which is most regularly used by individuals for filing income tax returns. It also represents a certificate used by a person’s employer for clearly stating income details and also the tax amount deducted on that employee’s behalf and paid to the government. A typical employee should receive his form 16 from his employer by April 30th every year.
Income from Salary is Taxable
According to the Indian Government norms, any income generated in the form of salary is a taxable income. The term Salary referred to here is the income of a person, which is earned out of an employer-employee relationship. This form is issued under Rule 31 (1) (a) of the income tax rules by the Indian Government under the Income Tax Act passed in 1961. However, it should be noted here that all salaried incomes are not taxable. Only the incomes that exceed the exemption limit in form of a salary set by the government; the employer starts deducting the taxable amount and pays the rest as salary to the employee. This deducted amount is also called Tax Deduction at Source (TDS).
What does Form 16 Contain?
Form 16 details the salary earned by a salaried person during a fiscal year, permissible savings done by him (under Section 80C of the Act) and details of income tax deducted from his account during that year. Every employer has to send a summary of details of such forms to the Indian Income Tax Department at the end of a financial year. It should also include details of the employee such as his full name, address, his PAN, emoluments, tax deductions he is liable to; and details of the amount that has been deducted and deposited in Government Accounts. However, if the employer doesn’t have a TAN no, then it can’t issue a form 16 and can’t deduct any taxes at the source from it’s employees.
The Value of Form 16
The significance of the Form 16 is that it is technically the only form of authenticated document that may be produced by a tax payer to the outside world, viz. income tax departments, banks, loaning bodies, institution etc. Form 16 is also required at the time of processing a VISA. This form is also mandatory in getting an Income Tax Clearance Certificate.
Deductions that an Employee Receives
There are a number of exemptions from tax and deductions that an employee may receive under Sections 80C, 80D, 80E and a few more sections. It is not mandatory that as an employee you need to mention about all deductions that you should receive to your employer. You may claim for your exemptions later by filing relevant columns. But to a good tax payer, it is always recommended that s/he should report all deductions that are due, to the current employer so that the TDS is minimized to the maximum.
There are certain sets of standard deductions, which are counted as deductions from the salary of an individual. These deductions are- i) House rent allowance ii) Transport allowance iii) Any form of allowance for academic, research or any other professional development iv) Educational allowance for children v) Allowance granted to a salaried person for meeting the hostel fees of his wards.
For Incomes other than Salary
A salaried person also may have other forms of income. Examples of such incomes are- interest earned from a bank account, or income from rent etc. It is advisable that this information should be made available to the employer for correct and less deduction of TDS.
Penalty and Consequences
A person who has failed to file his income tax return details through Form 16 may be penalized. It is the responsibility of the employee to download the TDS certificates of each quarter and use them for reference. It is a form of crime ignoring income tax responsibilities and a person may be penalized with a penalty of Rs. 5,000 or more and an interest rate may be levied on the tax that hasn’t been paid.
Delayed returns of this kind aren’t permitted for any later revisions, even if there may be any possible errors in the return filing. Sometimes, the Income Tax Department handles these cases with an iron hand and the person who has been negligent may have to face a search and seizure exercise by the government. IT always better to pay off your dues in time and avoid any surprise audit by the income tax department.
There may be different inhibitions in the mind of a new tax payer. But a little discussion with the employer or with a person who has experience in filing tax returns will act as guiding principles for the amateur. Do not worry if you are concerned about some possible mistakes; those may always be corrected later.