How to Use Form 16 for Salary Income Tax Filing
If you are a salaried employee, Form 16 will be the vital document to file your income tax. This is a format under section 203 of Income Tax Act 1961 and Rule 31(1)(a) prepared by the employer given to the employee once in a year.
Salary includes many components envisaged by the Law of land and allowances and benefits set by the employers. There are other elements like statutory deductions, deductions agreed by the employee and loan or other deductions to arrive net salary payable each month. The summary of the additions, deductions and net pay are listed in a salary slip given to the employees every month. As per the tax slabs for the year 2015-16, those who are drawing salary more than around ₹ 21,000 will come in to the tax bracket. If you have taxable salary the employer starts deduct TDS. Normally the expected tax will be calculated after considering your exemptions and deductions and the tax will be equally deducted every month. At the end of the year a revised calculation will be made by the employer incorporating changes and accordingly corrections will be made in the tax deductions.
The details of the tax deducted will be uploaded to the Income tax authorities once in every quarter. After the end of the year each employer can download the summary sheet of the tax deducted from each employee as separate document from ‘TRACES’, a website for TDS management with an employer login by the Income Tax department, and which is called Form 16 part A. The Form 16 Part B is form prepared by the Employer for each employee.
Form 16 Part A contains the following details:
1. Form 16 Certificate number
2. Name and address, PAN and TAN of the of the Employer
3. Name and address and PAN of the employee
4. Total amount given for each month and the TDS deducted for the same
5. The date of payment and date of TDS remittance
6. Details of advance tax paid if any (Tax paid by employee before the end of the financial year)
Form 16 Part B contains the following details:
1. Components of Gross salary for one year
2. Exemptions under section 10 and 24 (Allowances, housing loan interest)
3. Deduction under section 16 and 80C to 80U (profession tax, entertainment allowances, etc.)
4. Rebate under section 87A (₹ 2000 from tax if taxable income 5 lakhs or less)
5. Relief under section 89 (relief for arrear salary)
How to use Form 16 to fill the tax form Let us have a look on the figures of Form 16 Part B first.
1. The item no.3 can be the first figure to be entered. The exemption under section 10 is to be deducted from the gross pay and net amount is to be filled first.
2. If you paid profession tax and entertainment allowance it should be filled in the prescribed places. The exemption on entertainment allowance is limited to government employees only.
3. The deductions as per section 80C to 80U are separately entered.
4. Accordingly the as per item no. 11 can be arrived. This amount is called the total taxable amount.
5. If the amount in item No.11 is less than or equal to 5.00 lakhs ₹ 2000 will be deducted from the tax calculated.
6. From this point onwards, we can use Form 16 Part A.
7. The PAN, TAN and address of Employer, the TDS and advance tax details are to be filled as per the data given.
8. In addition to this, the details like tax assessee’s bank account, name of father or guardian etc. are also to be filled.
The deductions like interest from housing loan are to be claimed in the form separately.
Section 10 Allowances
Travelling Allowance - cost on official tour or transfer of duty
Daily Allowances - expenses for official journey
Conveyance Allowance - conveyance expenses for performing official duty
Helper Allowance - expenses for a helper used for performing official duty
Academic Allowance - performing academic or research or training pursuits in institutions
Uniform Allowance - cost of uniform
The exemption is for the actual amount spent or amount received, whichever is lower. The other exemptions with limit are:
|Type of Allowance||Amount exempt|
|(i) Special Compensatory Allowance for hilly areas or high altitude allowance or climate allowance.||₹800 common for various areas of North East, Hilly areas of U.P., H.P. & J&K and ₹ 7000 per month for Siachen area of J&K and ₹300 common for all places at a height of 1000 mts or more other than the above places.|
|(ii) Border area allowance or remote area allowance or a difficult area allowance or disturbed area allowance.||Various amounts ranging from ₹200 per month to ₹1,300 per month|
|(iii) Tribal area/Schedule area/Agency area allowance available in M.P., Assam, U.P., Karnataka, West Bengal, Bihar, Orissa, Tamilnadu, Tripura||₹200 per month.|
|(iv) Any allowance granted to an employee working in any transport system to meet his personal expenditure during duty performed in the course of running of such transport from one place to another place.||70% of such allowance upto a maximum of ₹ 10,000 per month.|
|(v) Children education allowance.||₹100 per month per child upto a maximum 2 children.|
|(vi) Allowance granted to meet hostel expenditure on employee’s child.||₹300 per month per child upto a maximum two children.|
|(vii) Compensatory field area allowance available in various areas of Arunachal Pradesh, Manipur Sikkim, Nagaland, H.P., U.P. & J&K.||₹2,600 per month.|
|(viii) Compensatory modified field area allowance available in specified areas of Punjab, Rajsthan, Haryana, U.P., J&K, H.P., West Bengal & North East.||₹1,000 per month|
|(ix) Counter insurgency allowance to members of Armed Forces.||₹3,900 Per month|
|(x) Transport Allowance granted to an employee to meet his expenditure for the purpose of commuting between the place of residence & duty.||₹800 per month.|
|(xi) Transport allowance granted to physically disabled employee for the purpose of commuting between place of duty and residence.||₹1,600 per month|
|(xii) Underground allowance granted to an employee working in underground mines.||₹800 per month.|
|(xiii) Special allowance in the nature of high altitude allowance granted to members of the armed forces||₹1,060 p.m. (for altitude of 9000-15000 ft.) ₹1,600 p.m. (for altitude above 15000 ft.)|
|(xiv) Any special allowance granted to the members of the armed forces in the nature of special compensatory highly active field area allowance||₹ 4,200/- p.m.|
|xv) Special allowance granted to members of armed forces in the nature of island duty allowance. (in Andaman & Nicobar & Lakshadweep Group of Islands)||₹ 3,250/- p.m.|
How to benefit HRA and your house rent under section 10 (13A) of the Income Tax Act
House Rent Allowance (HRA) is eligible for deduction only in case an employee living in a rented house. Usually HRA is given to accommodate the rent expenses of employee to perform his duty well. The Income Tax rules endorsed certain conditions for benefiting the HRA deduction. The benefits are differing for employees living in metros compared to others.
The HRA deduction is calculated in two steps.
Check whether the employee lived in a rented house.
Collect rent receipt
Check the period for which the rent paid for
1) HRA received for the year
2) 40% of Salary/ 50% for Metro cities
3) Rent paid in excess of 10% of Salary
Salary means Basic + DA + fixed percentage of commission on turnover. Least of the above will be treated as eligible deduction.
For Example: Mr.Sharma is employed in Mumbai in a private company earns salary with Basic 25000, DA 15000 HRA 9000, CCA 2500, fixed commission on turnover 7500. He is living in a rented flat at Mumbai for a monthly rent of ₹15000 from June 20011 onwards. The eligible deduction for the financial year 2015-2016 is:
1. HRA received for the year - 9000x12 -108000
2. 50% of Salary - [25000+15000+7500]x12x50% - 285000
3. Rent paid in excess of 10% of Salary –(15000x12)-[25000+15000+7500]x12x10%- 42000
The least of the above three is ₹42000. Therefore the eligible deduction from gross salary is ₹42000. ie. [25000+15000+9000+2500+7500]x12-42000=666000 will be the taxable income.