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With the tax-paying season fast approaching, you would be receiving ‘Form-16' from your employers now. For first-time earners, here is a brief note on this document, its purpose and utility.
Tax deduction details
From your monthly salary slip, you would surely have noticed some amount being deducted for taxes alongside deductions for contribution to employee provident fund, etc. Form-16 is a compilation of the taxes that have been deducted by the company throughout the year from your earnings.
If you are going to pay the necessary taxes at the end of the year, why should the company deduct it from your salary right from the beginning? Well, it is because the Income-Tax Act mandates your employer to do so. Issued in a specified format, Form-16 is a ‘Certificate of Tax Deduction at Source' (TDS) by your employer in compliance with section 203 of the Act.
Form-16 contains details such as the name, address and PAN of the employer and employee, the details of salary paid and the tax deducted. In an annexure, it also gives the details as to which bank/branch the tax has been deposited in and on which date.
Utility
For the salaried class, Form-16 is essential to file the income tax return. Until a few years ago, along with other documents like proof of insurance premium payment, PPF deposit, etc., this form had to be attached to your IT return when submitting it to the department. With the advent of online filing and the new ITR series of forms, the returns have become annexure-free. However, the current returns have a schedule wherein Tax Deduction Account Number (TAN) number and name of the employer, income chargeable under salaries and total tax deducted as per Form-16 are to be filled in. Data being available online, IT authorities can key in TAN number of your employer and your PAN number and check for discrepancies, if any, at the click of the mouse.
Form-16 is also accepted as proof of your salary in many instances. For example, when you are applying for a loan, financiers/ bankers may ask for Form-16 and/or IT returns for the last few years, primarily to gauge you ability to service and repay the money. What if you have switched jobs this year? In that case, remember to get the Form-16 from your previous employer too. Just like how would you add the salary you earned at both the places to arrive at your income, tax deducted by both the organisations must be shown in the ITR.
Plan early
As you prepare your tax return in the next few weeks, some of you may realise that your employer has deducted more tax than you actually end up being liable for. This may be due to clubbing of your tax saving expenses at the fag end of the year. You will then have to apply for refund of the excess tax paid, which may take quite a while to come back to your pockets.
This locking up of funds can be avoided if you plan your tax savings well in advance. At the beginning of a new financial year (April 1), companies generally give a projection of how much they would take away from your pay as TDS every month. So, if you make additional tax saving expenses earlier on in the year and make it known to them, it would help your employer deduct the right amount of tax.
Need any other investment-related help? Feel free to write in to us at >younginvester@thehindu.co.in
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