Form 16 is issued annually, by an employer to an employee as a proof of salary paid and taxes deducted on it. It has two parts i.e., Part A and Part B as discussed below.
Tax returns of the salaried taxpayers for FY 2018-19 (AY 2019-20) can be filed in form ITR-1 or ITR-2. The details of income from salary, allowances exempt, deductions claimed, are in Part B of Form 16, while Part A contains the employer, employee and employment details such as PAN, address etc.
The Central Board of Direct Taxes (CBDT) has notified certain changes 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.
1) Details under the new Form 16:
Under the new format of Form 16, Part B has been amended to provide more details about the allowances exempt under section 10 such as house rent allowance, leave travel allowance etc., and deductions allowed under Chapter VI-A of the Act i.e. section 80C to 80U.
Form 16 will contain information about the below allowances:
|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)|
|House rent allowance||10(13A)|
|Any other amount exempt under section 10|
|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|
|Interest income on savings account||80TTA|
|Amount deductible under any other provision of Chapter VI-A|
2) Impact on ITR filing
ITR-1 form can be filed by a resident individual taxpayer having total income up to Rs 50 lakh. Such individuals can report income from salary, one house property, income from other sources and agricultural income up to Rs 5,000 in the ITR-1 form.
The ITR-1 form requires broad details of the components of income from salary i.e., salary, perquisites and profits in lieu of salary. However, the form requires complete details of allowances exempt under section 10. Therefore breakup of exemption under each allowance such as HRA, LTA, gratuity etc must be separately reported. Each of the deductions under chapter VI-A must also be separately reported. After the notification of the new Form 16, these details would be available from the new Form 16 issued to an employee and thus facilitate the filing of the ITR. If you use an online platform to file your ITR, these details can be automatically populated to your ITR, minimising your effort and helping you e-file accurately.
The form ITR-2 applies to taxpayers who are individuals and Hindu Undivided Families (HUFs) who do not have income from business or profession. Also, taxpayers who have total income exceeding Rs 50 lakh and are not eligible to file ITR-1 can file ITR-2.
In addition to the details of allowances and deductions required under ITR-1, the ITR-2 form requires complete break-up of the details of various components of salary. It requires specifications of the amounts falling under salary, perquisites and profits in lieu of salary. However, the new format of Form 16 does not provide the break-up of the salary components. This information can be drawn from the annexure to Form 16 provided by an employer. An illustration of the annexure is provided below:
|1. Salary as per provisions of section 17(1)|
|a. Basic salary||XXX|
|b. House rent allowance||XXX|
|c. Leave travel allowance||XXX|
|d. Uniform allowance||XXX|
|e. Special allowance||XXX|
|f. Other allowance||XXX|
|Total salary as per section 17(1)||XXX|
|2. Value of perquisites under section 17(2) as per form 12BA||XXX|
|3. Profits in lieu of salary under section 17(3) as per form 12BA||XXX|
2c) Other information available under the new format Form 16 which taxpayers would also report in the ITR forms:
2C1) Income (or admissible loss) from house property as reported by an employee to the employer
The taxpayer can report the income (loss) from house property under the section ‘Details of Income from House Property’ of ITR-1 or ITR-2.
2C2) Income under the head ‘Other Sources’ reported by an employee to the employer
The taxpayer can report the income under the head other sources under the section ‘Income from other sources’ of of ITR-1 or ITR-2.
2C3) Total amount of salary received from other employers
An employee will have to provide employer wise salary details. The complete break-up of details of the various components of salary have to be provided for salary earned from each employer during the financial year. For this purpose, an employee would need to refer to the annexure to Form 16 received from the respective employer and fill in the details in the ITR-2. Some websites allow uploading of more than one Form 16, making this task super easy.
ITR-1 does not require the reporting of employer wise details of salary as required in ITR-2 above.
Thus, the above changes in Form 16 along with the annexure to Form 16 would provide all the details necessary for filling up the salary data in ITR-1 and ITR-2. Further, under ITR-2, the details would facilitate cross verification of the claims for exemptions under section 10 made by the employees as against the allowances received as components of the salary.
The writer is the founder & CEO ClearTax. Views expressed are his own.