Form 16 is an important documentation of tax payment that every employer should present to their employees. Form 16 is not normally provided to employees who do not fall into the tax rate since they are not required to pay taxes or submit returns.
Importance of Form 16
Form 16 serves as documentation of timely tax payments. It also validates and records the validity of an employee’s income. Individuals receiving a salary of Rs. 2.5 lakh or less in a financial year (FY) are free from Income Tax.
Elements of Form 16
There are two elements to Form 16, often known as a pay TDS certificate.
1. Part A contains all of the TDS information and acts as confirmation of the tax deducted by the employer.
2. Part B is an annexure that provides additional information such as your total income, tax deductions, tax paid, tax due, and other income if applicable. Let's take a closer look at each component.
Part A of Form 16
1. Name and address of the employee, as well as the name and address of the employer.
2. PAN - Employee's permanent account number, as well as your employer's TAN (tax deduction account number).
3. The assessment year is the year in which your tax is assessed based on your previous year's earnings. If the fiscal year is 2019-20, for example, the assessment year is 2020-21.
4. Employment Duration.
5. Salary Specifications – Gross pay, bonus or perks, deductions, and net pay.
6. Total income and tax deductions during the course of the year.
Part B of Form 16
1. The employee's taxable pay.
2. Section 80 C (tax-saving investments), 80CCC, 80CCD, 80D (health insurance premium), 80E (interest on any school loan), 80G (donations), and other appropriate tax deductions and exclusions.
3. Total of all deduction amounts subtracted from taxable income.
4. Details on the education cess and surcharge taxes.
5. Total tax due plus the amount of TDS withheld by the employer.
6. The ultimate amount on which your taxes will be computed is your gross total income.
7. Taxes to be paid or refunded
Differences between Form 16 vs Form 16A
Form 16 A is a TDS certificate that is relevant for TDS on income other than pay, while Form 16 is a salary certificate provided by the employer. Banks, for example, use form 16A to deduct TDS on the interest earned on any fixed deposit or recurring deposit bank account.
It also includes the same information as Form 16: your PAN number, TAN number, and any revenue generated other than your pay, as well as the TDS deducted from that income.