What is Form 16 and How Does one Benefit From it?

You must be knowing of the three main seasons in our country. After summer comes the monsoon and after monsoon comes winter. You must be knowing of another season as July 31st 2013 rapidly approaches. Yes I am talking of the taxation season. There is also another defining factor involved here. You will receive money from the Government if you are one of the fortunate ones. Yes I am talking about the contract employees who work for organizations in India whose tax is deducted at source as they are regarded in the professional category. They can fill up the Form 16 A and claim refunds at a later date provided their salary is less than INR 2 Lakhs per annum. Next To Being Shot At And Missed There Is Nothing Better Than An Income Tax Refund. Let us now talk of the other unfortunate subjects of this country who have to pay the Government their Income Taxes. You have to first collect that Form 16 which is the very basis of you filing your tax returns. This form is given to you by your employer .Don’t Know What Is This Form 16? Care To Find Out? The team of Financial Planners at IndianMoney.com are always there for you to plan your taxation needs in a most effective and efficient manner. You can explore this unique Free Advisory Service just by giving a missed call on 022 6181 6111.

So What Is This Form 16?

Let us first understand what is meant by Tax Deducted At Source. This is mainly a tax collection mechanism where tax is deducted by your employer and directly deposited with the Government. It is assumed that you an employee of the company and a tax paying citizen of India will have some tax liability. Your TDS is deducted directly from your salary by your employer. Your employer estimates your tax liabilities taking into account your tax deductions under Section 80 C, LTA and HRA and deducts a certain amount directly from your salary and pays it as income tax to the Government. You then calculate your actual tax liability. If your tax liability is more than the TDS you pay the balance amount and if the tax to be paid is less than the TDS then you can claim a refund. Your Company issues you the Form 16 which contains the details of the tax deductions made by your employer on behalf of you the employee. The Form 16 consists of the income earned by you in the previous year, your tax liabilities as well as your tax deductions. The Form 16 gives your salary for the entire assessment year or for the duration of your stay in the Company. The Form 16 is given to you by your employer in the month of May or June. The deadline for filing your income tax return is July 31st.You need to make sure that the Form 16 is in your hands well in advance of this deadline.Your Form 16 consists of the details of the PAN (Permanent Account Number) and the TAN (Tax Deduction And Account Number) of your employer who deducts the tax at source. If your company does not have a TAN Number it cannot deduct tax at source and cannot issue you a Form 16.You might be thinking that the mere fact of receiving the Form 16 is proof that your income tax has been paid. This is not the case. Your work begins after the Form 16 has been issued to you .You now have to file the income tax returns. You need to note that if you have worked for more than a single Company in a financial year you need to obtain two Form 16’s

What Are The Components Of Form 16?

Some Of The Deductions Available To You Shown On Form 16

There are various subheadings available in Form 16.The deductions available to you are an important feature of Form 16.

Let us consider Mr. Ramesh 30 Years of age works for an IT Company. He is a citizen of India and resides at Bangalore. He is paying a rent of INR 60000 per Annum. His Salary slip is shown below :

Salary slip per annum

Calculations Of The Exemption Amounts Of The HRA
1.)HRA received is INR 40000
2.) Rent paid minus 10 % of the Salary = INR 60000-10% of 220000=INR 38000
3.) 40% of the Salary (As Bangalore is not a Metropolitan City) = 40% of INR 220000=INR 88000.

Whichever is lesser among the three is tax exempt

The lesser amount among the three is INR 38000.So the taxable HRA is INR 40000-INR 38000=INR 2000.
Note : Calculation of salary for the purpose of calculating the exemption amount of HRA : Basic Salary is INR 200000 .Dearness Allowance is INR 20000 (Assuming DA is included in retirement benefits) Salary is INR 220000

Professional Tax

You are charged a tax based on the income you earn as a professional. This tax is charged to you based on the income tax slab you fall under. The maximum amount you can be charged as professional tax under any State in India is INR 2500.

I would like to end this article quoting the famous phrase " Thinking Is One Thing That Can Never Be Taxed " .So use your brains and will that Form 16 in a correct manner.