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New Form 16 Format

The Central Board of Direct Taxes (CBDT) has notified a new format for Form 16. The new format shall be effective commencing from May 12, 2019. The new Form 16 prompts for further details and places additional responsibilities on employers. In this article, we discuss some of the major highlights of the new Form 16 format.

What is Form 16?

Form 16 is a certificate from an employer that substantiates the TDS-withholding performed on the employees’ salary. The form comprises of two components, namely Part A and Part B and includes information on filing income tax returns. While Part A highlights the particulars of tax deducted and deposited quarterly, the subsequent part is an annexure to PART A and provides a detailed breakup of salary and deductions. The form serves its purpose in claiming tax credits at the time of filing of Income Tax Returns (ITR).

Employers’ Responsibilities

Though the employer makes the certification through this form, the employees must support the employer with the essential and accurate details so as to enable him/her to specify the same in Form 16. As for the employer, he/she must verify the documents and details provided by the employee and validate the permissibility of expenses and deductions as per the income tax rules. The employer is vested with the responsibility of determining the taxable income and liability of the employee.

Salary Earned from Previous Employer

Employers would now be required to separately specify the particulars of the amount of salary received by the employee from other employers as “Reported total amount of salary received from other employers”. These details are furnished by the employee to the employer in Form 12B.

Disclosure of Secondary Income

Employees are required to disclose details of income or loss from house property or other sources to the employer for the performance of TDS. In the past, employees were free to disclose any type of income earned.

Exempted Allowances

While the distinct presentation of the sum and particulars of allowances for all exemptions were optional in the past, it has been mandated as part of the present amendment. The amendment implies that the list of allowances exempted under Section 10 must be reported specifically line by line. The exempted allowances include Leave Travel Allowance, death cum retirement gratuity, commuted value of pension, leave encashment, and House Rent Allowance (HRA) among others.

Standard Deduction

Considering the introduction of a deduction of Rs. 40,000 from the financial year 2018-19, a provision for the compulsory reporting of Standard Deduction has been enforced.

Section 80CCD Deductions

Apart from Standard deductions, the following details of deduction must be stated:

• Section 80CCD (1B) – for additional deduction of Rs. 50,000 in National Pension Scheme.
• Section 80CCD (2) – for deduction in respect of the employer’s contribution.

Deductions to be Reported Specifically

The following deduction must be specifically reported:

• Deduction for the payment of health insurance premium under Section 80D.
• Deduction for the payment of interest on loan acquired for higher education under Section 80E.
• Deduction for donations contributed under Section 80G.
• Deduction for interest income on savings accounts under Section 80TTA.

Other Amendments

• Education Cess is now split into Health and Educational Cess.
• As a similar break up of exemptions under Section 10, a deduction under Chapter VIA has been added in Form 24Q (TDS returns meant for the usage of those who are filing returns under the Income Tax Act as employers), and the form has been brought in line with Form 16.