What is Form 16 - Why You Should Fill Form 16? - Loan Trivia


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Wednesday 8 January 2020

What is Form 16 - Why You Should Fill Form 16?

Income tax in India is calculated under five heads and paid accordingly, given the individual’s income exceeds the exemption limit. The income heads for tax calculation include the following –
  1. Salary.
  2. Property rented out.
  3. Business/profession.
  4. Capital gains.
  5. Other sources.
An accessible individual is required to compute the payable tax from income earned in a financial year. For salaried individuals, TDS is applicable. It is essential to understand TDS on salary to have conceptual clarity regarding what is Form 16.

Tax deducted at source (TDS) from salary income and Form 16

Under Section 192 of the Income Tax Act, 1961, every salaried individual whose income exceeds the exemption limit is required to pay TDS. As per this mandate, tax is deducted from one’s salary income at source.

Understanding of what is Form 16 thus stems from this deduction. On TDS deduction, the employer issues it as a certificate of such deduction and submission of tax to the government. Issuance of this certificate is ordained under Section 203 of the Income Tax Act.

It carries a detailed account of salary earned by an employee, TDS applicable on it and such other information. Employers are required to mandatorily issue this form to their employees for each financial year. The availability of the TDS certificate allows one to apply for credit cards. One should also look for ways to reduce credit card interest and save money before applying.

The understanding of what is Form 16 also extends to its two components –

Part A of the form
In the case of a change in employment during a financial year, the employer issues Part A of the form that carries information related to one’s service period.

As the form’s use extends to availing credit cards, you must provide the same to make sure that it does not land among the reasons for your credit card application declined.

Part B of the form
An annexure to the first part of this form, its requirement from previous as well as a new employer during employment change depends on the individual.

The form carries details like –
  1. Salary breakup in detail.
  2. Exempted allowance breakup in detail u/s 10.
  3. Allowed deductions under different sections of the Income Tax Act, 1961.

Why should you obtain Form 16?

After an understanding of what is Form 16, it is essential to know why you should obtain the form.
Listed below are a few essential reasons for the same –

Convenient tax liability computation
As an employer may not have accurate information related to the employee’s income, the onus of calculating tax liability remains on the employee. With a TDS certificate in hand, he/she can thus compute the liability accurately after considering such deduction.

Assists in income tax return filing
With a detailed breakup of your salary given in the form along with allowances and bonus and tax-saving investments, it can assist with the online filing of your income tax return.

Serves as proof of income stability when availing credit cards
When applying for financial instruments like credit cards, a person is required to submit Form 16 for the previous two years. It serves as both an income proof as well as income tax liability statement, thus helping establish the applicant’s income stability.

Documents like TDS certificate and timely filing of IT returns improve one’s chances of availing a loan and credit cards. The application process for the likes of Bajaj Finserv RBL Bank SuperCard is further simplified with their minimum eligibility requirement.

The lender also makes financing hassle-free and helps save valuable time through their pre-approved offers. These offers are available on several financial products, including business loans, personal loans, and home loans.

Make sure to obtain the TDS certificate when changing your employment to simplify tax filing in the future and easy access to funding as loans. Also, you can keep it as proof of tax payment when filing for refunds.

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