Changes to Form-16, ITR and their impact on tax filing

The Central Board of Direct Taxes (CBDT) has notified new ITR forms and new format of Form-16 applicable for the FY 2018-19. The new ITR forms will be used by taxpayers to file ITRs this filing season, and employer will issue the new format of Form-16, which is the salary TDS certificate. Changes have also been made in the format of the TDS return - 24Q which is filed by employers for depositing to the govt, TDS deducted by them on salaries. This move will allow the tax officials to cross-check and validate an individual’s ITR, Form-16 and the company’s TDS return easily.

Here is the list of changes done across all the forms as mentioned earlier:

Changes to Form-16:

1. The new format of Form-16 Part B requires an employer to provide details of each and every allowance claimed exempt by an employee. Previously, the employer could choose to not mention the nature of the exempt allowances.

Similarly, the department has changed the format for the ITRs applicable to salaried individuals in line with the Form-16 changes.

The table-1 depicts the disclosure of allowances that is asked for in the new format.

2. As per the new Form-16, deductions under section 80C to 80U will also have to be disclosed individually. Now, the department has mandated the head-wise disclosure of the deductions in the order, mentioned in table-2.

3. Also, employers will have to download and issue Form-16 (Part B) to their employees only from government’s TRACES portal. Earlier, the employers were compulsorily required to download Form-16 (Part A) from the TRACES portal, and Part B was issued using third-party software.

Changes to ITR forms:

1. An individual who is a director in a company or holds unlisted shares of any company will no longer file his return using ITR-1 form. He can use ITR-2 or ITR-3 forms to file ITR for FY 2018-19.

2. The ITR forms now require in-depth details of the components under income from salary, i.e., salary, perquisites and profits in lieu of salary. Also, the complete break-up of the exempt allowance under Section 10 is required to be reported.

3. In the newly notified ITR-1, 2 & 3 forms, taxpayers will have to provide additional details such as residential status, days of residency in India, holding unlisted shares of a company and details of the buyer(s) of property in case of capital gains earned by a seller on the sale of immovable property.

4. While disclosing income under the head ‘income from other sources’ in any of the ITR forms, a taxpayer will be required to furnish income-wise details like interest income from savings account, bank deposits, income tax refund, family pension income and others.

5. All the registered taxpayers will be mandatorily required to file ITR electronically, except for those who are above 80 years of age and do not have any income from business or profession.

How will the changes discussed above impact ITR filing?

1. A salaried individual will have to disclose exempt allowances under Section 10 & 16 of the tax laws and deductions under Chapter VI-A in his income tax return. After the amendment to the Form-16 format, these details would be available from the new Form-16 to the individual and thus facilitate the filing of his ITR. However, he can use an online platform to file his ITR, and these details can be automatically populated to the ITR, which will minimise effort and help e-file accurately.

2. In addition to the break-up details of allowances and deductions required in ITR-1 form, the ITR-2 form requires an exhaustive break-up of all the salary components. It requires the amounts to be specified under salary, perquisites and profits in lieu of salary. Though, the new Form-16 does not provide these break-up of the salary components. This information can be drawn from the annexure to Form-16 provided by the employer.

3. An employee will have to provide employer-wise salary details. The complete break-up of salary details has to be provided for salary earned from each employer during the FY 2018-19. This is applicable to those filing ITR-2 and onwards and not to those filing ITR-1. For filling this information, an employee can refer to the annexure to Form-16 received from the respective employer and fill in the details in his ITR-2 form. Some websites allow uploading of more than one Form-16, making this task hassle-free.

(The writer is Archit Gupta, Founder & CEO, ClearTax)