New Form 16: Must know changes for salaried employees

The new Form 16 will come into effect from May 12, 2019, which means employers can include the changes and hand out new forms. Note that employers issue Form 16 in the second half of June every year.

Mumbai: Changes in Form 16 have been introduced by the Central Board of Direct Taxes (CBDT) for the financial year 2018-19 or assessment year 2019-20. This came just a couple of weeks after the CBDT incorporated changes in income tax return forms ITR 1 to ITR 7.

The new Form 16 will come into effect from May 12, 2019, which means employers can include the changes and hand out new forms. Note that employers issue Form 16 in the second half of June every year.

What is Form 16?

Form 16 is a proof or certificate of tax deducted at source (TDS) the employer cuts from your salary every month. It gives details of the TDS deposited by the employer with the income tax department.

Besides, it is a document crucial for filing of income tax return (ITR), as it has all the relevant heads for filing of the ITR. Under the Income Tax Act, 1961, it is mandatory for the employer to issue Form 16 to its employees.

Breakup of Form 16

Form 16 has two parts, Part A and Part B. Part A has information like name and address of the employee, taxpayer’s PAN and name, PAN and Tax details of the company, and details of TDS cut and submitted with the I-T department.

Part B is an annexure to Part A, and contains details of salary, its breakup, details of allowances and their breakup, and various deductions allowed under Section 80 of the I-T Act, 1961.

Changes in Form 16

Following are the changes CBDT introduced in Form 16 that you must know:

Exempt allowances: Part B has details of allowances exempt from tax under various sub-sections of Section 10. In the previous form, the different allowances were not specified and declared under different heads.

Also, the employers were allowed to draw their own format for this particular section. Now the I-T department has introduced the following fixed heads:

• Leave travel allowance
• Death-cum-retirement gratuity
• Commuted value of pension
• Cash equivalent of leave salary encashment
• House Rent Allowance
• Amount of any other exemptions

Deductions under Section 80: Taxpayers are entitled to get exemptions under Section 80, from 80 C to 80 U, for making specified investments. In the previous form, you had to declare various investments you made in the financial year concerned. Now the I-T department has introduced following specified heads:

• Life insurance premium
• Pension fund contributions
• Contributions by employee for pension scheme
• Amount paid or deposited to notified pension scheme
• Contribution by employer to pension scheme
• Health insurance premium
• Interest on loan taken for higher education
• Total deduction for donations certain funds, charitable institutions
• Interest on saving account

Other changes to know

There is a separate section for mentioning standard deduction and a separate field for income from other sources offered for TDS. Now you can also mention the total amount of salary from previous employers.