Form 16 is the TDS certificate that an employer issues to employee when TDS is deducted by them. When an employer deducts TDS on salaries, the income tax act requires that a certificate must be issued by the employer, where the details of tax deducted and deposited is certified.
The certificate carries necessary details that assist in the process of filing Tax Returns. Form 16 is provided by an Employer to the Employee and is used by the employee as reference as well as proof while filing Income Tax Returns.The Form furnishes various details such as Salary Income components of the Employee, Tax Deducted at Source (TDS) by the Employer, and Tax paid by the Employer to the Income Tax Department.
Form 16 is also known as the salary certificate as it is issued by employers even when there is no TDS on the salary of the employee.
Form 16 is divided into two parts. Part A and Part B.
Part A :
This part encompasses your personal information like your name, your address, your employer's name and address, PAN of both, TAN of your employer and receipt number of TDS payment.
In addition, Part A provides information like assessment year (AY), i.e. the year in which tax liability is computed for the income earned during the previous year. This particular portion of Form 16 also provides information about your employment period with the existing employer.
After that, it provides a summary of TDS deducted by the employer on employee's behalf. This amount is deducted by the employer from your salary from time to time as tax and credits the same to the Income Tax Department. The most relevant information in Part A is TAN (Tax Deduction Account No.) of employers and total TDS deducted as both of the information has to be correctly mentioned in your Income Tax Return so that you can take tax credits for TDS deducted.
Hence Form 16 becomes a proof of the TDS deducted by the employer from salary of the employee and paid into the government account.
Part B :
This part of Form 16 provides major information that you require to file your Income Tax Return. First of all, your Salary income is mentioned. Then the tax free allowances like HRA or Conveyance allowance is deducted from salary to arrive at taxable salary. Any other incomes or deduction for Interest on housing loan just follows after this.
Subsequently, deductions are disclosed.
Deductions include those U/S 80C, 80CCC plus 80CCD.
The entire deductions are subtracted from Gross Income so as to arrive at taxable income. Hence, tax is then computed on the amount based on the current tax slab.
This is a complete detailed record of salary and related deductions and exemptions computed in a step by step manner.