Form 16: New format for salary TDS certificate makes it difficult to fudge income, tax breaks

Watch: Changes in Form 16 will change your ITR filing

Highlights

  • The new format will allow the tax department to view a detailed break up of the income and tax breaks claimed by a salaried person.
  • As per the changes notified, Form-16 issued by an employer will have to specify the nature of tax-exempt allowances paid to the employee.
The CBDT has notified a new format for Form 16 – the salary TDS certificate – requiring a detailed break up of tax exempt allowances paid to the employee and also of all tax breaks claimed by him/her. The earlier format allowed companies to give consolidated figures or break-up in different formats for both these thereby leaving some ambiguity regarding their individual composition.

Concurrent changes have been made in the format of the TDS return (details of TDS from employees’ salaries) filed by companies with the tax department to allow the tax man to cross check an employee’s ITR, Form 16 and the company’s TDS return easily.

Last year, the tax man had detected several cases of false claims of large income tax refunds made by some employees which is likely to be another reason for this streamlining exercise which is aimed at removing all space for such manoeuvres in future.


The new format will allow the tax department to view a detailed break up of the income and tax breaks claimed by a salaried individual at the first instance itself. Consequently, any discrepancy between the income and deductions shown in Form 16 and the ITR filed by the person can be immediately spotted. This new format is likely to help the department digitise cross checking of figures too because it takes away the leeway that companies earlier had in providing the break up of income and deductions and fixes the format for providing these.

The new format for Form 16 was notified by the Central Board of Direct Taxes (CBDT) via a notification dated April 12, 2019. The format specified in the notification comes into effect from May 12, 2019 which is well before the last date for issue of Form 16 or the TDS certificate for salary by employers. Therefore, those issuing Form 16 after this date will have to do so in the new format.

As per the changes notified, Form-16 issued by the employer will have to specify the nature of tax-exempt allowances paid to the employee. Abhishek Soni, CEO, tax2win.in, a tax-filing website says, "The previous format of Form-16 was not providing the specific list of tax-exempt allowances on which the salaried person was not required to pay any tax. Now as per the revised format, the employer will have to specify the nature as well as amount of allowances which are exempt from tax. Similar details have also been asked for in this year's ITR-1." The revised format provides a list of allowances such as Travel concession or assistance under section 10(5), house rent allowance under section 10(13A) and so on that are exempt under the Income Tax Act.

New changes in Form-16
Previously, there was no specified format to report them
S. No. Changes in Form 16
1 Detailed break-up of tax-exempt allowances such as HRA, LTA
2 Detailed break-up of tax-breaks under section 80C to 80U as mentioned to employer
3 Your previous employer income as reported to your current employer
4 Standard deduction as announced in Budget 2018
5 Any other income reported to your employer other than salaries

Chartered Accountant, Naveen Wadhwa, DGM, Taxmann.com says, "In existing Form 16 (Part B), the employer had an option to provide a description of the exempt allowance. Consequently, every organization had created different formats as per their requirements, which resulted in different formats of Part B of Form 16. The new Form 16 (Part B) has removed this option to write-down the description of exempt allowances. Now the employers have to mention the amount of exempt allowance before earmarked fields."

The move is expected to make it easier for the department to cross check information from ITR-filed by the taxpayer, TDS returns (Form 24Q) filed by the employer for the tax deducted and Part-B of Form-16. Apart from making changes in the Form-16, the notification has made concurrent changes in the format of TDS returns filed by the employer for the tax deducted from salary paid to employees.

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Tax-exempt allowances recieved by an employee to be reported in new Form-16 under section 10
Form-16-U-s10
Source: Notification issued by CBDT

Chetan Chandak, Head of Tax Research, H&R Block India says, "The Part B of form 16 has been amended to provide the section wise break of various exemptions allowed under section 10 of the Income Tax Act. This is in line with the recent changes made in the tax return forms (ITRs) last year (i.e. A.Y. 2018-19). The new forms also ask for more elaborate section wise break-up of various Chapter- VI-A deductions. Though many corporates/employers were already providing this break in the Form 16s issued by them but it was difficult for the tax department to verify as to whether the employees/taxpayers are reporting these exemption/deductions in their tax return in-line with the form 16 issued by the employer. As these details were not uniform across Form16, TDS return - Form 24Q and Individual Tax Return forms - ITR, it was bit difficult for the tax department to track the tax evaders who were resorting to false claim (exemptions/deductions) to reduce the tax liability."
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Wadhwa says, "In new Form 24Q, it is mandatory to furnish the PAN of the lender in case any deduction has been claimed in respect of housing loan taken from a person other than a Financial Institution or the Employer. Earlier, it was optional."

Chandak says, "In recent past there were many instances where the tax department unearthed many fraud cases where few tax professionals helped the taxpayers claiming unreasonably high refunds by resorting to false claims. Therefore the tax department has also made similar changes in Form 24Q - TDS return to bring uniformity across all the sources of information. This is with an intention to track the tax evaders who resort to illegal means for reducing the tax burden."

Form-16 will also provide the break-up of all the tax-related deductions under section 80C to 80U you have claimed from salary paid by your employer. Soni says, "Just like tax-exempt allowance, the earlier Form-16 format specified the total amount of deductions that have been claimed as per chapter VI-A of the Income Tax Act by the employee from employer. The new format will also provide the detailed break-up of deductions that have been claimed."

Wadhwa says, "Similar changes have been made in respect of deduction available under Chapter VI-A and losses under the head house property. These changes would ensure that organizations follow common structure for TDS certificates and employees find it convenient to file the tax return on basis of TDS certificates. Further, it also gives a confirmation that the deductions and exemptions claimed by the employees in Income-tax return match with the information available in TDS certificate"

This also means that if there is any additional tax break/deduction claimed by you while filing ITR (beyond the ones claimed against salary income from employer), the income tax department would be able to easily spot the extra claim. Soni advises, "If there is any deduction that you have not been claimed through your employer but is being claimed while filing ITR, then you should have the document proof for it, in case tax department has further queries regarding the same."

Wadhwa says, "If an employee has received salary from his ex-employer or other employer during the previous year and same has been reported to the current employer for TDS purposes, then separate reporting is required for such salary income in new Form 16."

Standard deduction, announced in the Budget 2018, has also been introduced in Form16 under the head 'Deduction under section 16'.

Shalini Jain, Tax Partner, People Advisory India, EY India says, "The new Form also requires to report the total amount of salary received from other employers. Another interesting point to note in the new format for Form 16 is that non-salary income which an employee could declare to the employer has been limited to income from house property and income from other sources. In the previous form, however, this column was open ended and the employee could also declare capital gains income to his employer for deduction of taxes at source. Amendments are also made to include the rebate under Section 87A and standard deduction from the salary income. Corresponding changes have also been made to TDS returns which needs to be furnished by the employer on a quarterly basis. The annexure requiring details of salary paid or credited during the financial year has been amended to report detailed information on Section 10 exemptions and Chapter VI-A deductions as well.”
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