Broadly put, Form 16 is the documentary evidence of tax compliance for a taxable individual. Under section 203 of the Income Tax Act, 1961, Form 16 is issued as a proof of tax deducted at source (TDS) from salary.
The certificate indicates an exhaustive summary of the amount credited to an employee as salary and the TDS applicable on such amount. This certificate is issued on an annual basis, after conclusion of the financial year. The concerned employer deducts the tax from employees’ salaries and deposits with the Government. It is mandatory for an employer to issue Form 16 as a certificate of TDS to the employee whose income qualifies for the taxable limit.
There are different components included in Form 16. However, those are laid down in two parts – i.e., Part A and B. One must also understand the differences between 16A and 16B to gain an overall understanding of the certificate.
Different components of Form 16
Particulars of Part A
As mentioned earlier, Form 16 is divided into Part A and Part B. To begin with Part A, the following details are recorded and certified by way of the document –
Employer’s name and address.
Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN) of the employer.
Employee’s Permanent Account Number.
Summary of the credited or paid amount and tax deducted at source for the particular employee.
Date of tax deduction from salary.
Date of tax deposit with the Government.
Summary of tax deduction and deposit done quarterly with Income Tax authorities.
TDS payment acknowledgement number.
The period for which the particular employee was employed with the organisation in the given Financial Year. If you are considering applying for a credit option, say the Bajaj Finserv RBL Bank SuperCard, such information would come in handy to establish your income sufficiency.
If you are wondering about the important things you should know before applying for a credit card, a suitable proof of income and liability of income tax can be a relevant requirement. Form 16 issued to you by employer acts as an evidence for the same.
Form 16 has to be downloaded by an employer from the TRACES portal. All the information mentioned therein relates to that is collected on behalf of an employee from his or her salary. While determining the differences between 16A and 16B, the information included in each instance has to be contrasted.
Particulars of Part B
Part B of Form 16 is an annexure to Part A. It includes a consolidated statement focusing on all other necessary details in terms of quantum of tax paid, tax due, etc. Here are some of the components mentioned in Form 16B:
Salary structure and its various elements such as leave encashment, leave travel allowance (LTA), Gratuity, house rent allowance (HRA), etc. Since funds available to an individual, such as the credit card limit approved, is dependent on one’s income, among other factors, the Form would act as a valid document in such cases.
Allowances that are provided to employees under Section 10 of Income Tax Act, 1961 such as children’s education, conveyance, medical etc.
Particulars on deductions from salary towards investments such as life insurance policies, pension plans, provident funds, Sukanya Samridhhi Scheme, Tax Saving Mutual Funds, etc.
Particulars on gross income.
Particulars on net taxable salary.
Particulars on surcharges, rebates, cess, etc.
Information on the total tax amount payable on income, tax deducted, balance tax due, and refund, among others.
It can be understood that points of differences between 16A and 16B are about the details that are laid down in both the documents. Moreover, such information serves as a validated proof of your income. Discrepancies in such documentary proof could be one of the reasons why your credit card application can be rejected, or for that matter, any other advance application.
Benefits of Form 16
While it may appear to be an extensive paperwork, notwithstanding the differences between 16A and 16B, there are certain benefits to Form 16 solely-
Form 16 contains all details as to the tax deducted at source and deposited with the Government. All the particulars which are mentioned in Form 16 also need to be included while filing the Income Tax Return.
When Form 16 is issued to an employee, it amounts to an authorised proof of incomes as well as the tax paid for it. This may act as prominent evidence to making applications for financial instruments such as credit cards. Even if you are considering to apply for a credit card online in a few steps, the document would come in handy.
Certain financial institutions like Bajaj Finserv also extend pre-approved offers to facilitate the process of financing. These offers are available in several financial products, which also include business loans and personal loans. You can check your pre-approved offer by simply entering your basic details such as your name and contact number.
The format of Form 16 has recently been revised for better representation of the individual break-ups of income and the taxes paid. The newer format includes tax exemptions as well. One must thus take care that he/she obtains the certificate in the latest format applicable for suitable use during tax filing or credit applications.