Indispensable checks you must run before using Form 16 to file ITR

Before filing ITRs, salaried taxpayers should reconcile Form 16 and Form 16A with AIS, Form 26AS and personal records to avoid errors and notices

Companies have started issuing Form 16 to employees. Salaried taxpayers should not use it to file their income-tax returns (ITRs) mechanically. They should verify the details, reconcile them with other tax statements, and correct errors before filing.

  What do these forms contain? 

Form 16 is a tax deducted at source (TDS) certificate that an employer issues to a salaried employee. “It contains details of salary paid and tax deducted during the financial year,” says Sonu Iyer, partner and national leader, people advisory services-tax, EY India. 

Part A of Form 16 contains employer and employee details, salary paid, tax deducted, and tax deposited with the tax authorities. It also contains details such as the assessment year, period of employment, quarterly salary and TDS details, and challan or book identification number. 

Part B contains the computation of taxable income. This includes the salary breakup, exemptions and deductions. It may include gross salary, perquisites, profits instead of salary, exempt allowances, deductions under Section 16, other income reported to the employer, Chapter VI-A deductions, relief under Section 89, and net tax payable. 

Form 16A is a TDS certificate issued for non-salary income such as interest, professional fees, rent, commission, or contractual payments. “It is issued by the payer to the recipient every quarter after depositing TDS with the government and filing TDS returns,” says Iyer. 

It contains deductor and deductee details, nature of payment, amount paid, TDS deducted, and tax deposited with the government. 

“Form 16 and Form 16A together show what tax has been deducted, but do not necessarily provide the complete picture on taxable income,” says Amit Baid, head of tax, BTG Advaya. 

Verify key details 

Taxpayers should first verify personal details such as name, permanent account number (PAN), and address in Form 16 and Form 16A. “Even minor errors in personal details can create issues in return processing,” says Iyer. 

Taxpayers should also check the employer or deductor details, including name, PAN, and tax deduction and collection account number (TAN). The tax year and the assessment year should be correctly reflected. 

Check the salary and TDS shown in Part A of Form 16 and the salary details in Part B carefully and reconcile them with payslips. 

“Confirm that regular salary components, bonus, arrears, employee stock ownership plan and other perquisites have been correctly captured,” says Baid. 

Taxpayers who have opted for the old tax regime should review exemptions and deductions such as house rent allowance, leave travel allowance, provident fund contribution, life insurance premium, and health insurance. 

“Eligible deductions that were omitted from these certificates may be claimed separately,” says Suresh Surana, a Mumbai-based chartered accountant. 

Verify that the employer has applied the correct tax regime while doing the final tax computation. In the case of Form 16A, check whether the payer has reported the nature of income correctly. 

Do not assume that Form 16 is always correct. “Using Form 16 and Form 16A helps prevent omissions of salary income, perquisites or deductions, but the particulars still require cross-verification,” says Chandni Anandan, tax expert, ClearTax. 

Reconcile with AIS and Form 26AS 

Form 26AS is an annual tax credit statement that shows tax deducted and tax collected against a taxpayer’s PAN. The Annual Information Statement (AIS) is more comprehensive. “The AIS often captures additional income like interest and dividends that may not appear in Form 16,” says Deepashree Shetty, partner, global mobility services, tax and regulatory advisory, BDO India.

“The tax department’s system compares income and TDS reported in the return with data available in Form 26AS and the AIS,” says Iyer. 

Taxpayers should check the underlying income against which TDS was deducted, and whether the TDS in Form 16 and Form 16A matches Form 26AS and the AIS. 

Some of the common errors that may be found include missing income entries, incorrect TDS reporting, duplicate entries, or timing mismatches between deduction and reporting. 

Akhil Chandna, partner and global people solutions leader, Grant Thornton Bharat, suggests that taxpayers should identify income that appears in the AIS but not in Form 16 or Form 16A and evaluate its taxability. 

“All income reported in the AIS, including interest income, dividends, capital gains, and other specified transactions, should be considered while filing the return,” says Chandna. 

Taxpayers can also verify advance tax payments made during the year using AIS. 

This reconciliation exercise offers several benefits. “It helps to verify that all income has been correctly captured and that the corresponding TDS has been deposited and reflected against the taxpayer’s PAN,” says Surana. 

It also ensures that the income reported in the tax return is complete and consistent with the third-party information available to the tax authorities. “Proper reconciliation minimises the risk of defective returns, tax notices, mismatches during processing, and future disputes with the tax department,” says Surana. 

A mismatch can result in adjustments, tax demands, denial of credit, or delays in refund processing. 

If an AIS entry is incorrect, the taxpayer must submit feedback on the income-tax portal. They must retain adequate documentation to support their position. 

Handle multiple Form 16s carefully 

Taxpayers who worked for two or more employers during the year should obtain Form 16 from each of them. They should aggregate income from all Form 16s and report the consolidated figure in the return. Allowances, perquisites, and deductions should also be aggregated. 

Ideally, employees should submit salary details from the previous employer to the current employer to help the latter deduct the correct amount of TDS. 

“Failure to do so results in a TDS shortfall, leading to an advance tax liability and interest on late payment,” says Anandan.

“Taxpayers should not claim the basic exemption or standard deduction twice,” says Shetty. This mistake should also be avoided while claiming other deductions and exemptions, such as house rent allowance. 

Perquisites, joining bonus, leave encashment, relocation allowance, retention bonus, and other employment-related receipts should be disclosed correctly. 

“Reconcile income in all Form 16s with Form 26AS, the AIS, the Taxpayer Information Summary (TIS), and their own financial records,” says Surana. 

Mistakes arising from multiple Form 16s can lead to additional tax liability, interest, and notices from the tax authorities.

  Correct errors early 

If a taxpayer identifies a discrepancy in Form 16, they should approach the employer immediately. They should request correction of payroll records or the underlying TDS return if the error originated from the employer. “Ask for a revised Form 16 where required,” says Chandna. 

Errors in Form 16 should be resolved before filing the return wherever possible. “If a revised Form 16 is not issued before the filing due date, report the correct figures after reconciling them with Form 26AS, the AIS, and underlying records,” says Surana. If a discrepancy creates additional tax liability, pay the amount before filing the return. 

Chandna warns that errors may lead to denial of tax credit, processing delays or notices. 

Finally, treat Form 16 and Form 16A as important reference documents, but not as the sole basis for filing the income-tax return. Reconcile Form 16 and Form 16A with Form 26AS, the AIS, and personal financial records before filing. 

Points to remember

•    Retain Form 16 and Form 16A for at least six years

•    Recheck employer’s calculations: responsibility for accurate return rests with taxpayer

•    Do not rely only on TDS alone to determine final tax liability if there are multiple income streams

•    Report all taxable income, like foreign income, even if it does not appear in Form 16 or Form 16A

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The writer is a Mumbai-based independent journalist