Here is what you must know about the changes in Form 16

Central Board of Direct Taxes has made changes to Part B of Form 16 to make compliance easier.

 Here is what you must know about the changes in Form 16

Form 16 is a certificate that every employer who deducts tax at source has to provide to the employees. The format for the same is decided upon by the Central Board of Direct Taxes. It is a statutory requirement as per Section 203 of the Income Tax Act. It is made up of two components - Part A, which gives information about tax deducted at source and Part B, which provides the break-up of the salary paid along with any allowances and deductions allowed.

Part A of Form 16

Part A of Form 16 contains the following details:

  1. Name and address of the employer
  2. TAN & PAN of the employer
  3. PAN of the employee
  4. Summary of tax deducted at source by the employer
  5. Quarterly deposits of the TDS made by the employer.

Part A can be generated by visiting the TRACES portal. If you change jobs during a year or hold multiple salaried jobs, each employer will have to provide a separate Part A for the period you were employed with them. 

Part B of Form 16

Part B of Form 1 contains the following:

  1. Detailed breakup of the salary
  2. Detailed breakup of allowances exempt under sector 10
  3. Detailed break up of various deductions allowed under Chapter VIA of the Income Tax Act. It also includes deductions under Sections 80C, 80CCC, 80CCD(1), (1B), & (2), 80D, 80E, 80G and 80TTA

The budget 2019 has made changes to Part B of Form 16. The key changes include:

  1. Part B to be generated online, as well. Earlier, employers had to prepare part of Form 16 by themselves. Starting this year, the same will have to be downloaded from the TRACES portal. This will further streamline the process and the compliance burden on tax deductors will reduce. 
  2. Detailed breakup of allowance under Section 10 and deductions under Chapter VIA are to be provided now. Previously, employers could show a basket of allowance. Further, the deductions and exemptions would be matched with the TDS and the return filed. Using a standard structure across all Form 16 makes compliance simpler.

Related: Dummy’s guide to Form 16 

The list of exemptions and deductions are provided below.

Exemption under Section 10:

  • Leave travel concession (Section 10(5))
  • Gratuity (Section 10(10))
  • Commuted Pension (Section 10(10A))
  • Leave Salary Encashment (Section 10(10AA))
  • House Rent Allowance (Section 10(13A))

Deduction under Chapter VI-A:

  • Life Insurance Premium or contribution to PF etc. (Section 80C)
  • Contribution to Pension Funds (Section 80CCC)
  • Employee’s contribution to Pension Scheme (NPS) (Section 80CCD(1) and Section 80CCD(1B))
  • Employer’s contribution to Pension Scheme (NPS) (Section 80CCD(2))
  • Premium paid towards Medical Insurance (Section 80D)
  • Interest on higher education loan (Section 80E)
  • Donation to notified funds, charitable institution etc. (Section 80G)
  • Deduction on interest from savings account (Section 80TTA)
  1. More detailed reporting of other income. This section now includes separate sections for income from house property and other sources
  2. Part B of Form 16 has been revised to include the standard deduction of ₹40,000 for salaried individuals.

Related: Types of ITR Forms that every taxpayer should know about 

Details from Form 16 needed to file an income tax return

When filing the income tax return for FY 2018-19, you would need the following details from Form 16:

  1. Break up of allowances for which exemption is claimed under section 10
  2. Break up of all the deductions claimed under Chapter VIA
  3. Taxable salary
  4. Income or loss from house property as reported by the employee
  5. Income from other sources as reported by the employee
  6. TDS deducted by the employer
  7. TAN and PAN of the employer
  8. Name and address of the employer

Remember that even if you are not issued a Form 16, you may still have to file your income tax return and pay income tax. The employer would issue a Form 16 only if TDS were deducted by the employer. It is possible that while the employer does not have to deduct TDS based on the salary paid, your total income from all other sources still qualifies for filing income tax.  

Therefore, even if your employer fails to issue a Form 16, it is your responsibility to file an income tax return and pay any taxes due. Read more about how the last date for the e-filing of ITR forms has been shifted to August 31 for Individuals and HUFs.

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