Before you file your tax return, note the key changes in Form 16

Part B of Form 16 has been amended seeking more details about the allowances exempt under section 10 such as HRA, LTA, etc and deductions allowed under Chapter VI-A of the Income Tax Act, 1961.

Form 16 is the annual salary TDS certificate issued by an employer to an employee. The Central Board of Direct Taxes (CBDT) has notified amendments in Form 16. The new Form 16 is made effective from 12 May 2019. Employers issuing Form 16 for the financial year 2018-19 will have to issue them in the new format.

Part B of Form 16 has been amended seeking more details about the allowances exempt under section 10 such as HRA, LTA, gratuity etc and deductions allowed under Chapter VI-A of the Income Tax Act, 1961 i.e. section 80 deductions. The important changes are discussed below:

Exemptions under section 10:

Presently, an employer has the option to mention the nature of the allowances exempt under section 10 with the respective amounts. While some employers provided complete disclosure, others aggregated the allowances and disclosed the net amount exempt under section 10. 

A summary of the allowances for which information is required against ear-marked fields is provided below:

Exempt Allowances required to be disclosed

Exempt under section

Leave travel concession

10(5)

Death cum retirement gratuity

10(10)

Commuted value of pension

10(10A)

Leave encashment

10(10AA)

House rent allowance

10(13A)

Any other amount exempt under section 10

A snap-shot from the new Form 16 is provided below:

 

Deductions under Chapter VI-A:

Presently, employers have the option to present the details of deductions under section 80C to section 80U of the Act. Similar to the disclosure of exempt allowances, some employers provided complete disclosure of the deductions, and others aggregated the allowances and disclosed the total amount of deductions allowed as a single line item in Form 16.

A summary of the deductions for which information is required against ear-marked fields is provided below:

Deductions required to be disclosed

Section

Life insurance premium paid, contribution to PPF etc.

80C

Contribution to pension funds

80CCC

Employee’s contribution to pension scheme

80CCD(1)

Taxpayer’s self contribution to notified pension scheme

80CCD(1B)

Employer’s contribution to pension scheme

80CCD(2)

Health insurance premium paid

80D

Interest paid on loan taken for higher education

80E

Donations

80G

Interest income on savings account

80TTA

Amount deductible under any other provision of Chapter VI-A

 A snap-shot from the new Form 16 is provided below:

Other changes:

• Disclosure of income (or admissible loss) from house property as reported by an employee to the employer
• Disclosure of income under the head ‘Other Sources’ reported by an employee to the employer
• Reporting the total amount of salary received from other employers
• Standard deduction allowed under section 16 of the Act

The changes mentioned above to Form 16 will ensure that employers follow a uniform format for reporting of salary including the exemptions and deductions. Also, the amendment is in line with changes introduced in the income tax returns notified for AY 2019-20. This would facilitate employees in the filing of their tax returns for AY 2019-20. 

In addition to the above, the move would facilitate the Income Tax Department to cross verify income reported by an employee with the TDS certificate/Form 16 issued by the employer. 

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The writer is the founder & CEO ClearTax.