Why is it important to give Form 16 to employees?

Why is it important to give Form 16 to employees?

Why is it important to give Form 16  to employees?
It’s that time of the year again, when you get the details about the salary paid to you in the previous Financial Year (FY) and the Tax Deducted at Source (TDS). June 15 was the last date for all employers to provide the Form 16 to their employees for the FY 2016-17. If you haven’t yet been given the same, you could be missing out on an important tax-related document.

What’s Form 16?

Form 16 is a TDS certificate which an employer needs to furnish to his employees when TDS (Tax Deducted at Source) is deducted. When any employer deducts TDS on the salary, the Indian Income Tax Act necessitates that a certificate should be issued by such employer, wherein all the details of the TDS deducted and deposited is provided.

In other words, the act provides that each and every person who is deducting TDS from any payment should provide to the recipient the certificate which contains the details of these deductions. Hence, employers are mandated to issue this certificate, in the format as prescribed in Form 16, stating that the tax is paid to the credit of the Union Government, with the amount so paid and other specified particulars.

Form 16 has two parts—part A and B. Part A comprises the personal details of the employee like name and address, name of the employer and employer’s address, PAN (Permanent Account Number) of both, employer’s TAN (Tax Deduction and Collection Account Number), and the AY (Assessment Year).

It also contains details of the period of employment with the current employer. Additionally, it has a summary of periodic TDS on the employee’s income. It should ideally contain the details of the TDS amount, when was it deducted, on what income and when the same was deposited.

Part B of the form contains details of the income earned during the employment with a specific employer. It contains basic details like gross salary, house rent allowance, other income, and other allowances.

This section also comprises the details of deductions claimed by the employee under sections 80C, 80CCC and 80CCD of the Income Tax Act, 1961. Furthermore, the section also has details of other deductions under other sections of the Income Tax Act, 1961 like sections 80D, 80E, 80G, and others.

The total deductions are calculated under Chapter IV-A and deducted from the gross income to arrive at the taxable income. The tax liability is then computed on this amount. Finally, part B provides the details of the tax which is payable by an employee or the amount of tax which is refundable to him.

Is it mandatory to issue Form 16?

Form 16 is required to be furnished by the employer to their employees only when the tax has been deducted from the salaries paid. Where no TDS is deducted by an employer they might not furnish a Form 16 to their employees.

What if an employer does not issue a Form 16?

If any employer postpones or does not furnish the Form 16 on time, they could be penalised for the same. Every employer is liable for paying a penalty for not issuing Form 16 when they deduct TDS.

As per the Act, the employer must issue the Form 16 by June 15 after the completion of the relevant FY in which the income has been paid and TDS deducted. And in case the form isn’t issued by the time specified under section 272A (2) (g) of the Income Tax Act, such employers are required to pay a penalty of Rs 100 for every day of the default till the same is furnished.

However, the penalty cannot exceed the amount of tax deducted. Other deductors like banks that deduct TDS on the interest paid on the deposits are required to furnish the TDS certificates in the Form 16A quarterly.

An employee can approach the AO (Assessing Officer), under whose jurisdiction he is required to file the income tax return, and provide a written complaint against an employer who refuses to furnish the Form 16 on time. Depending on the materiality of the complaint, the assessing officer might take appropriate actions.

(The writer is Founder and CEO at ClearTax)
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