What is Form-16 and Why is It Necessary for the Employees?

Income Tax Form 16 is a certificate issued by an employer specifying that TDS has been deducted from one’ salary. It is issued under Section 203 of the Income-tax Act, 1961. Any employer deducting TDS on an employee’s salary has to issue Form 16 to the employee. Generally, it is released on or before 31st May of the next year following the financial year in which the tax has been deducted.

Form 16 has two parts, viz. Part A and Part B.

Form A

Form A of the Form 16 contains vital information like the name and address of the employee, name and address of the employer, assessment year, period of employment with the employer, employee Permanent Account Number (PAN), summary of the tax deducted and deposited quarterly by the employer which is also certified by the employer. Part A is generated and downloaded through the TRACES portal of the Income Tax Department, Government of India. It also contains a unique TDS Certificate Number.

Only an employer with a TAN (Tax Deduction Account Number) is eligible to deduct TDS and therefore issue a Form 16. If the employer has not deducted any TDS, the employer is not obliged to grant a Form 16 to the employee.

Form B

It is issued by the employer and contains breakup of the salary paid, deductions allowed under Chapter VIA of the income tax act including deductions under 80C, 80G, 80CCD, etc. and relief granted under section 89. It also contains a statement showing particulars of perquisites, other fringe benefits or amenities and profits in lieu of salary with value thereof. If an employee has worked at more than one employer, he/she shall have more than one Form 16. Form 16 is signed by a high-ranking official of the Company.

Form 16 is an essential requirement while filing the Tax Returns with the Income Tax Department of India as it acts as a reference as well as proof. The Form contains all the requisite details regarding the employer and its TAN, salary components, deductions, taxes deducted by the employer at the source, tax paid by the employer to the Income Tax Department, etc.

Each employer issues a form 16 as per section 203 of Income-tax Act. It includes the details of TDS deduction. It also contains the details of your salary, other income and tax benefits.

Importance of form 16

  • It helps in filing IT returns
  • It is also an essential document in clearing tax credit
  • It can also be used as an income proof
  • It helps in calculating the expected tax refund
  • It also helps in tax planning.

So, next time, when you sit to fill in your IT return, make sure you have your Form 16 with you.

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