Thursday, July 12, 2012

Guide to understanding your Form 16


As a salaried tax payer, you are issued a Form-16 by your employer. It’s quite simple to prepare your Income Tax Return using the information in your Form-16. We have created an annotated image to explain the most relevant portions of your Form-16.
The Form-16 can be conceptually broken up into two parts. One part is employer provided information, the other part is, information that you (the employee) provide to your employer.
Understanding your Form 16


Employer provided Information

Taxable Salary
Your employer will provide key information such as Gross Salary, Perquisites, Various allowances and deductibles. From a tax perspective Field-6, Income Chargeable under the head 'Salaries' is relevant. This is your taxable salary and you have to report this amount to the Income Tax Department.
Tax Deducted at Source (TDS) 
The other relevant information your employer will tell you is Tax deducted at source by them. This is field-18(a). This tax deducted is what you have paid to the Income Tax Department already. Note that the Income Tax Department provides Form-26 AS. This is a Tax Credit Statement. This statement tells you how much Tax was deposited on your behalf with the Income Tax department. The employer provided TDS information should match the Form 26AS provided by the I-T Department. We have detailed instruction on how to view your Form-26AS here. It is strongly recommended that you check your Form-26AS before you file your tax return.
Information you already have
Deductions
Deductions under Section 80C, 80D, 80E, 80CCF, 80G, 80DD, 80U, etc are reported by you to your Employer. You may or may not have reported all deductions to your employer. That is no problem. You can still claim them in your Income Tax Return by filling up the relevant columns of the Income Tax Return. In general, it’s a good idea to report your tax deductions to your employer to minimize the TDS by employer. That way you get to keep most of your paycheck during the year.
Income other than
Salary If you receive any other Income, like interest from a bank account or rent, etc. You may have informed your employer about it. This is mentioned in Field-7.
Typically, people who have a housing loan report it to their employers. The Interest paid on the housing loan gets you a tax deduction.
In case you haven't declared your Income or Losses to your employer, there is no cause for worry. You can directly report your additional Income or Loss in the Income Tax Return.

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