It is a friendly document; knowing its content is the easiest way of filing income-tax return
It’s that time of the year when your employer hands over your Form 16. Sneha Mitra, 24, a hotel manager in Cuttack, too, has recently received the form, but has no idea what to do with it. “This is my first Form 16. I have to figure out what to do with it,” said Mitra. She’s not alone; many people, especially, first-timers, are unable to decode it.
Here’s an explanation to what is Form 16 and what you should do with it.
What is Form 16?
Every year your employer will issue this document. It is a certificate under section 203 of the Income-Tax Act, 1961, which gives information on the tax deducted at source (TDS) from income chargeable under the head “salaries”. Simply put, it gives details of the tax deducted by the employer. If you have not received your Form 16, you can use the worksheet that the income tax (I-T) department provides to calculate and declare the amount (http://tinyurl.com/2x4n9k). Form 16 is useful in filing your income tax return (ITR).
What’s inside it?
Understanding the content of Form 16 helps you file your I-T returns; you may be able to do it yourself, without help from a chartered accountant or a financial planner, especially if your income comes entirely from your salary, and you have no other source of income.
Form 16 has two sections—part A and part B.
Part A consists of your personal details such as your name and address, your employer’s name and address, Permanent Account Number (PAN) of both, the employer’s Tax Deduction Account Number (TAN), and others. These details help the I-T department track the flow of money from your and your employer’s accounts.
Part A also gives details such as the assessment year (AY)—the year in which your tax liability is calculated for the income earned the previous year. For example, for income earned between 1 April 2013 and 31 March 2014, AY will be 2014-15. This year’s Form 16 will show 2014-15.
This portion of the form also gives details of your period of employment with the current employer. For instance, if in the last financial year, you have worked from 1 April 2013 to 31 March 2014, it will be mentioned in the form.
Next, it gives a summary of the TDS by the employer on behalf of the employee. This is the amount that the employer deducts from your salary as tax periodically and credits it to the I-T department. For instance, if every month your employer deducts 3,000 as tax from your salary, it will be shown in the Form 16 as deposited by your employer to the government. The summary space will be divided based on the periodicity of how your employer credits the tax to the I-T department.
Part B of Form 16 is the one that gives most of the details that you need to file I-T return, such as salary paid, other income, tax deducted, and more. Your gross income is mentioned first. Those who need to pay professional tax should note that the tax is not considered on the gross income.
Next, deductions are mentioned. These include those under sections 80C, 80CCC and 80CCD (contributions towards Public Provident Fund, life insurance policies, pension, among others). Remember, the aggregate amount deductible under these three sections should not exceed 1 lakh. Then come the deductions under other sections such as 80D (health insurance premium), 80E (interest on education loan), 80G (donations), and others.
The total deductions are reduced from the gross income to arrive at the taxable income. Tax is calculated on this amount based on your tax slab.
How to use it?
Form 16 is one of the documents that you need to keep handy before or while filing your ITR, which has to be done till 31 July.
While all deduction related details are mentioned in Form 16, you should cross-check the amounts with your investment and other documents. Is the health insurance premium mentioned correctly? What about life insurance premium?
“If there is an error in your Form 16, you will have to ask your employer to rectify it since it is the employer who has generated it for you,” said Rakesh Nangia, managing partner, Nangia & Co. For instance, if you have paid a premium of 12,000 for a health insurance policy but the Form 16 shows only 11,000, you will have to ask your employer to correct the mistake.
Remember Form 16 only declares TDS from salary. For other incomes, there are other forms. For instance, income from bank fixed deposit (FD) will be in Form 16A. You can get this form from the source. So, if you have interest income from a bank FD, you will have to get Form 16A from the bank.
Another form that comes handy is Form 26AS, the tax credit statement. It will help you verify details of TDS. Using this form you can check if your company or bank has indeed paid the tax and correctly reported to the I-T department. Form 26AS is available on the I-T department’s website. In case you have changed your job during the year, you have to get Form 16 from both employers and then file your ITR.
Who has to e-file?
If your annual taxable income exceeds 2 lakh, you have to file income-tax returns. And if this is above 5 lakh, you have to compulsorily e-file your ITR.
“You don’t need professional help to file ITR. If you have income from salary and or interest income from some fixed deposit or income from one house property, filing ITR is very simple. However, if you have income from other sources such as business income, you may need professional help to avoid any kind of errors in calculations,” said Suresh Sadagopan, a Mumbai-based financial planner.
To e-file an ITR, you will have to log in to www.incometaxindiaefiling.gov.in (see graphic). While e-filing, you need to furnish your PAN and bank account details. Fill in the correct bank details as this is where a refund will come if you opt for direct deposit into your bank account.
There are various ITR filing portals that will assist you in filing returns. Just make sure that they provide the most recent and updated information.
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