The IT Department is constantly trying to make the income tax filing process more efficient, transparent, and easy for the taxpayer as well as the assessing officer. Recently, the Central Board of Direct Taxation announced some key changes in Form 16, in order to bring more clarity. Before delving deeper, let’s find out what is Form 16 in income tax returns.
What is Form 16 in income tax returns?
Form 16 is issued by an employer on or before the 15th of June. You might want to ask your employer about how to fill Form 16 if you are a first-time taxpayer. It enlists various details like total salary earned by you, total TDS, and various deductions claimed by you in the year. Form 16 is divided into two parts - Part A and Part B.
What is Form 16 Part A?
Part A includes the basic identification details of you and your employer, PAN, details of employment, and a summary of TDS deducted on income. You can always download Form 16 from the TRACES portal and have a look at the specific details.
What is Form 16 Part B?
Part B is an annexure to Part A. It includes income and deductions claimed under various sections. If you have changed jobs, you can decide if you want Part B only from your last employer or from both your employers.
What are the latest changes?
For Form 16, a new format has been prescribed with effect from May 12, 2019. The changes in Form 16 are as follows:
Exemptions under Section 10
Salary structure is divided into various parts and allowances. Section 10 enlists the allowances which are exempt from tax. Earlier, all exempted allowances were combined under one head. Now, the nature and amount of each allowance will have to be specifically mentioned. The latest format has a list of allowances like gratuity, House Rent Allowance, Leave Travel Allowance, etc., and a residual head for the balance exemptions.
A standard deduction of Rs.40,000 was introduced in the previous year. The new Form 16 includes a different row for the disclosure of this standard deduction under the head ‘Deduction under Section 16’.
Income from your previous employer
Previously, income from a previous employer was clubbed with other income. Now, there is a separate row for disclosure of the same.
Deductions under Section 80C to 80U
This is one of the key changes in Form 16. With exempt allowances, the previous Form 16 could mention all deductions under Sections 80C to 80U in a consolidated form as a single entry. Now, the form requires a detailed section-wise breakup for Chapter VI-A deductions. This will basically help the department to scrutinize your income better.
You can avail a whole host of deductions under this and other sections by investing in life insurance. You can learn more about the various Term Insurance plans on offer from PNB MetLife by browsing the website. To know how your life insurance premium can help you save tax, you can check out Section 80C in detail.
Income from other sources
Earlier, non-salary income was an open-ended listing. You could also add capital gains income under the very same heading. Now, it is specifically limited to income from house property and income from other sources.
Why have these changes been made?
These changes are aimed at bringing about more uniformity in reporting of income. Owing to the ambiguity of the earlier format, it was easy for people to claim large refunds and deductions. This will now be difficult with the streamlining brought about by the changes in Form 16. The leeway that companies had for declaring allowances and that employees had in declaring deductions has now been taken away.
Considering the many changes in Form 16 in the previous year, there is good reason to be thoroughly apprised of all the minor as well as major tweaks.
*Tax benefits are subject to conditions and other provisions of the Indian tax laws and are subject to amendments made thereto from time to time.
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