Purpose and Components of Form 16

What is Form 16? 

Form 16 is a form that is used by taxpayers to simplify the process of tax payment and to calculate their payable taxes. It gives the taxpayers convenience and ease while going through the process of tax payment. This form has various components, systems of filling, verification process and generation system.

What is Form 16 A

Form 16A is a Tax Deducted at Source (TDS) Certificate that states the amount of TDS, the Nature of Payments and the TDS Payments deposited with the IT Department. Form 16-A exhibits use in non-salaried remittance, Professional payment for TDS, Bank Interest, Rental payment, and so on. 

This is a TDS certificate generated by employers to help them deduct the payable tax at its very core. The Income Tax Act of 1961 states that emoluments of more than Rs 30,000 which does not fall into the exemptions category are eligible for TDS. Here comes Form 16A to work, by proving that the deductible TDS was subtracted at the very inception of the income and not from the payments, giving important details about the process. TDS values are determined from the non-salaried income generated. The form comes out quarterly coinciding with the date of filing TDS returns.

Components of Form 16A

This certificate has a lot of components as in the process of income tax returns this form serves an essential purpose, some of its key components are mentioned below-

• The name, PAN and TAN details of the employer is very essential
• The name, PAN and TAN details of the employee is also mandatory
• The payment is online or offline
• In order to understand and keep track of the details the receipt number of the TDS payment is needed
• For tracking information, the proper date and tax amount deposited at the income tax department are also needed

Eligibility of Form 16A

 Any individual who receives remuneration and whose payable tax has been subtracted from the source of the income by his or her employer, is eligible for Form 16A. This holds irrespective of whether the income lines up for the exemption category.

Why is Form 16A required? 

It is required for the seamless filing of the income tax return and is proof of the employer’s payment of the money to the IT department which in turn is deducted as TDS from the salary of the employee.

It has all the information and details of the computed tax on the stated investments in the set of the financial year. An investment statement is the declaration of investment made by the individual like allowances given by the company, loans, medical bills, rent etc. including other necessary details that may put a mark on the amount of tax.

The time to issue Form 16A

The form must be issued by the employer giving ample time to the employee to file the income tax details. It is mandatory to issue the form before May 31st of the year of assessment.

Types of payments under Form 16A that attract TDS

There are certain modes of payments and investments that come under Form 16A and attract TDS, some of them are listed below.

• Rent
• Lottery wins
• Dividends
• Interests emanating from bank accounts
• Horse race winnings
• Insurance commissions
• Payments to NRI sportsmen or sports associations
• Payments made to contractors
• Payments done with the national savings scheme
• Purchasing of mutual funds
• Units generating revenue from Section 196b
• Brokerage, commission and compensation
• Income generating from foreign currency bonds
• Professional and technical service fees

Filing ITR with the help of Form 16A

The TDS Reconciliation Analysis and Correction Enablement System (TRACES) is a portal by the IT department where taxpayers are free to check and verify the payments made with Form 16A.

If the individual so wants he or she can verify the amount of TDS their employer has deducted from their income source they simply need the TAN and PAN numbers and access to Form 26AS. If so the employers can and must be contacted regarding any mistake in the TDS deduction.

Some reasons can be cited for any mistakes and discrepancies that may occur

1. Wrong amount stated
2. Incorrect challan identification number
3. Late filing or failing to file the TDS return
4. Wrong PAN or TAN details

Importance of Form 16A

The form must be issued in the current financial year by the employer. Banks and other financial establishments use the information provided by them in the form to issue loans. 

• Information provided is used while filing taxes.
• Tracks TDS on other income sources
• Helpful in filing ITR
• Supports loan application and strengthens eligibility
• Solid proof of income
• A single place to check all tax investments
• VISA insurance

It is hugely helpful for both employers and employees alike.