Understanding Form 16 - Tax on income

Understanding Form 16 – Tax on Income

Understanding Form 16 – Tax on Income: Form 16 is like a certificate that is issued by the employer, and this Form contains all the information that one needs for preparing and filing his/her tax return. Employers must issue this Form every year on or before 15th June of the next year, which is immediately after the financial year in which the tax got deducted. Form 16 has two distinct parts which are Part A and Part B. In case a person loses his/her form 16, then he/she can apply for a duplicate one from his/her employer. Form 16 is meant for dealing with the tax on taxable salary and tax deducted at source.

Understanding Form 16 – Tax on Income Overview

Form 16 contains information that is related to the employer and employee. Information such as name and address of the employer, PAN/TAN of the deductor, name and designation of the employee and PAN information of the employee. People have to disclose their assessment year, period of employment, address of CIT (TDS) and a summary of tax deducted at source in a detailed manner in Form 16. The summary includes quarter-wise information of receipt numbers of quarterly TDS returns in Form No 24Q, amount of tax deducted, and amount of tax deposited or remitted.

Form 16 is meant to show the employee’s gross salary along with the perquisites and profit instead of salary. In the section ‘Income under Head Salaries’, the employee can report his/her income from other sources. Under section 192(2B) and Rule 26B of the Income Tax Act, when an employee is having any other income despite his/her salary (not being a loss) in the same financial year, which is chargeable under any head such as income from capital gain or income from other sources, the employee must give a statement of such income and any tax deducted thereon to the employer so that he/she can take it into consideration while deducting tax from the employee’s salary.

When other incomes are added to the income under head salaries, one can get the gross salary of the employee. Gross salary is the total salary an employee gets after adding all the allowances and benefits but before charging the taxes. This is explained in detail in form 16 – part 1.

Calculating Tax

After calculating the employee’s taxable income, the ones whose income exceeds the amount that is exempted under Income Tax Act is known as assessee. On the income of the assessee, tax is charged at a rate fixed under the finance act for the relevant assessment year. Income tax also depends on the type of assessee. There are different types of assessee such as Individual, Hindu Undivided Family (HUF), Firm, Trust etc. In the case of an individual, the tax calculation depends on:

  • Gender
  • Age
  • Residential status

For the income that is earned between 1st April 2011 and 31st March 2012, the financial year is considered as 2011-2012, and the assessment year is considered as 2012-2013.

For a resident Indian for the assessment year 2012-2013, the income tax slab is as follows:

Tax Men Women Senior Citizen (60 years – 80 years) Very Senior Citizens (More than 80 years)
Basic Exemption 180000 190000 250000 500000
10% tax 180000 – 500000 190001 – 500000 250001 – 500000
20% tax 500001 – 800000 500001 – 800000 500001 – 800000 500001 – 800000
30% tax Above 800000 Above 800000 Above 800000 Above 800000
Surcharge No surcharge is charged in the case of an individual, Hindu undivided family, Association of persons and body of individuals
Education Cess 3% on the income tax

Tax Computation for Males

Tax computation for males in India is as follows:-

Level of Income  Tax
When the total income of the employee does not exceed Rs 1,80,000 Nil
When the total income of the employee exceeds Rs 1,80,000 but does not exceed Rs 5,00,000 10 percent of the amount that exceeds the income  Rs. 1,80,000/-
When the total income of the employee exceeds Rs 5,00,000  but does not exceed Rs 8,00,000 Rs. 32,000/- plus 20 percent of the amount that exceeds the income  Rs. 5,00,000
When the total income of the employee exceeds Rs 8,00,000 Rs. 92,000/- plus 30 percent of the amount that exceeds the income  Rs. 8,00,000

After the tax is calculated, surcharge and education cess is added to it. Let’s discuss these terms in brief:

Surcharge

The surcharge is meant to be an additional charge or payment that is charged on the taxable income of an employee. It acts like an extra fee that is added to another fee or charge. For example:

  • The fuel surcharge is meant for representing additions due to jet fuel prices.
  • Sea freight charges are meant for representing additions due to oil prices.
  • The surcharge is charged when payments are made through cheque, credit or debit card.

Education Cess

It is considered to be a contribution that is made towards the Secondary and Higher Education development in the country’s economy. All taxes that are levied in India are subject to an education cess, which is fixed at 3% of the total tax payable. Please note the 3% is not charged on the income tax but on the income tax payable.

Annexure A or Annexure B

An employee also gets Annexure A or Annexure B along with Form 16 depending on the type of the employer; they are also called the Deductor type because they are the ones who deduct tax from the salary of the employee. Annexure is something which informs about the details of the tax deducted and deposited in the Central Bank account with the help of a challan.

  • Annexure A is used if the employer or deductor type is Government.
  • Annexure B is used if the employer or deductor type is others.

Relief Under Section 89

Relief under Section 89 under the Income Tax Act is considered to be one of the most important tax rebates that are offered to the employees by the Government. It deals with the taxation of the salary when the salary is believed to be paid in arrears or in advance. Government employees are the ones who get higher salaries because of these arrears.

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