Why Is Form 16 Important For Filing Your Income Tax?

In simple terms, Form 16 is an important tax-related document that is issued to all salaried individuals by their employers annually. Form 16 includes all the details regarding the income paid to the employee, any tax-saving investments and deductions used by the employee as well as information about tax deducted at source (TDS), applicable for any specific Financial Year. The Income Tax Act of 1961 makes it mandatory to provide Form 16 to all employees who earn an annual income of more than ₹2.5 lakh. The companies/employers generally provide Form 16 to their employees at the latest by 15th June every year. If you have worked under multiple employers in a single Financial Year, you will need to take Form 16 from both employers.

Form 16 and the details that it contains are absolutely necessary for employees to file their income tax returns. Form 16 provides a fully accurate record of your salary and taxes paid. It essentially serves as proof that tax has been paid to the government from your end. At the time of filing taxes, you will need to provide Form 16 as the definitive proof of your income and taxes paid. Moreover, you can also use Form 16 as proof of income when applying for a loan or credit. Form 16 is also necessary for verifying whether the taxes paid are correct. Finally, Form 16 may also be used as a supporting document during your visa processing. As you can see, having a Form 16 is absolutely vital for all salaried employees for multiple reasons.

Also Read: What Is Section 80C Under the Income Tax Act?

Form 16 has two separate components, Form 16 Part A and Part B. Part A of Form 16 generally contains the following details -

• The personal details of the employee, such as name, residence, Permanent Account Number (PAN), and other information. 

• Details of the employer such as the name of the organisation, Tax Deduction Account Number (TAN), and the employer’s PAN number. 

• The TDS that was deducted from the employee's salary through each quarter, as well as the bank details and transaction information related to the deducted TDS. 

• Part A of Form 16 also mentions the financial year applicable as well as the time period in which you’ve been employed at the organisation.

Part B of Form 16 includes all the details of your salaried income, including the various components of your salary, the deductions, exemptions, and the final tax that is paid. To be more precise, Part B of Form 16 contains:

• Gross salary details with the split-up of all salary components like basic salary, house rent allowance, provident fund contributions, TDS, professional tax, etc. 

• Tax exemptions such as HRA, medical allowance, conveyance allowance, etc. 

• Any exemptions that are claimed under Chapter VI A of the Income Tax Act, 1961. 

• Tax amount paid and tax amount due, as well as a tax refund, if applicable.

Note: You should not confuse part A and part B of form 16 with Form 16A and Form 16B, which are entirely different forms. Form 16A is a type of income tax document that provides details related to TDS for all income other than salary. This includes TDS on freelance earnings, TDS on interest earned from FDs in banks, as well as TDS on commissions, rents, and other non-salary income. Form 16B is a tax document that includes details of TDS for property sales. The buyer of the property is responsible for deducting TDS and paying it to the government. Form 16B is then issued to the seller as proof that the TDS has been deposited to the government.

Also Read:

• What Is Form 15G In Income Tax And Who Can Submit It?

• What Is Form 26AS And Why Is It Important For You?