Primer. Form 16 in a new form

Every year, an employer issues Form 16 to an employee as proof of salary paid and taxes deducted on that income.

This form has two parts — Part A and Part B.

Part A requires details on the employer, employee and the employment such as the address and the PAN of the employee, while Part B comprises details of salary, deductions and exempted allowances. The Central Board of Direct Taxes (CBDT) recently notified changes in the format of Form 16 for FY2018-19.

The employers filing TDS returns will have to adhere to the new format with effect from May 12, 2019. Here’s a look at the changes made in Form 16 this year.

More disclosures in Part B

According to the new format, Part B has been amended to provide additional details of the exemption of allowances under Section 10, such as leave travel allowance (LTA), house rent allowance (HRA), deductions under Section 80C to 80U, in a definite manner.

Previously, employers were not required to disclose these allowances and deductions in a specific format.

The exempt allowances, which require disclosure, include LTA, HRA, commuted value of pension, death-cum-retirement gratuity, leave encashment and any other exempt allowance given by the employer.

Also, the new Form 16 will require disclosure for the deductions allowed for various investments and payments, namely life insurance premium, tuition fees for children, contribution to pension scheme, medical insurance premium, interest paid on education loan, donations and any other deductible payment/investments made.

Other requirements

1. Income (or admissible loss) from house property and income from other sources will have to be disclosed as reported by an employee to his/her employer.

2. The total amount of salary received from other employers, if any, will be reported in Form 16.

Now, it is mandatory for employers to download and issue Part B of Form 16 from the TDS Reconciliation Analysis and Correction Enabling System (TRACES) portal.

Previously, the downloading of the form was done from the TRACES portal and Part B was issued using third-party software. Employers are now required to issue standardised Part B forms.

They will no longer be able to condense deductions and allowances data into one cell and issue non-standardised Part B.

This amendment will leave no room for erroneous or reduced information in Form 16.

Moreover, Form 24Q (TDS return to be filed by the employer) has also been amended by the Tax Department in line with Form 16.

These amendments correspond to the changes introduced in the income tax returns notified for AY2019-20.

The writer is founder & CEO, ClearTax

COMMENT NOW