What is Form 16 for Income Tax

Sia was excited, it had been 6 months into her first job and she finally had a chance to make her own investments. She also knew that she had to keep her salary slips ready for filing her income tax return. One day she got a call from her C.A. asking about a ‘Form-16’, she had no idea what it was. Let’s explain to Sia what this form is.

Form-16 is essentially an income tax form, now Sia might think it’s the same as a salary slip; it’s not. Under the Indian Income Tax Act (1961), employers must mandatorily provide employees with this form. It’s usually given every June and has 2 Parts, A and B.

Why is the Form-16 Important?

This form is necessary for filing income tax returns each financial year. It gives a detailed break-up of Sia’s salary. This includes:

Under Part A:

• Name and Address of Employer

• Tax Deduction and Collection Account Number (TAN) & Permanent Account Number (PAN) of Employer

• PAN of Employee

• Certified Summary of Tax Deposited and Deducted Quarterly

Under Part B:

Part B is an annexure to Part A it shows the following:

• Detailed Break-Up of Salary—Gross and net amounts, including perks, allowances and/or benefits.

• Deductions Allowed Under Chapter VI-A—Includes, investments in provident funds, mutual funds/SIP, housing loan (principle and interest), Mediclaim insurance premium, among others.

• Relief Under Section 89—Only for salary received in arrears or in advance.

How Will Form-16 Help Sia in Computing Income Tax?

This form determines how much of Sia’s annual salary is taxable, it also gives an idea of how she can plan her investments under section 80C. Another important thing Sia can find out is, the TDS component. With the help of this form, Sia can plan her investments in a more efficient manner. This form will also help Sia in exercising all permissible tax-saving options.

Conclusion:

While a salary slip gives Sia an idea of her monthly salary, a From-16 is a broader perspective. It not only provides information, it also helps in income-tax computation. Moreover, with this form, she can plan her investments to be more tax-efficient. Every employer in India, must mandatorily provide a Form-16 as proof of paying taxes to the Central Government. Finally, this form is not an alternative to filing an income-tax return. Sia will have to attach her Form-16 to her income-tax return before submitting.