Now Form 16 will carry each and every detail and amount of exemption on allowances claimed by an employee. Therefore, this increases disclosures of salaried taxpayers
Form 16 is a certificate from your employer that has details of salary paid to you and TDS (tax deducted at source) on it. When it comes to ITR filing, Form 16 is perhaps, the most basic and important document for salaried taxpayers.
The Central Board of Direct Taxes (CBDT) has revised the format of Form 16. The new format is applicable from May 12, 2019. Employers will use this new format to issue Form 16 for salary earned in the FY 2018-19. This Form 16 will then be used by salaried taxpayers to file their tax return for FY 2018-19 (AY 2019-20). Therefore, it is important to understand the changes that have been made to this form.
- On salary earned from the previous employer
New line item: Reporting the total amount of salary received from other employer(s)
Earlier: Specific line item was not present. However, employers had to include salary income from previous employer if a new employee reported it to them. Employees submit Form 12B to disclose salary earned from the previous employer to their new employer.
Impact: This does not have much impact for you. Those who have had more than one employer usually have a Form 16 from each employer and they will still get separate Form 16s. In case you make a disclosure to the new employer in Form12B, the new employer must include it separately in the Form 16 issued by him to you, as per the new format. This was the case earlier too. Effectively, no change in your ITR filing.
2. Break-up of allowances that are exempt from tax
New Line item: Amount and details of all allowances where exemption is claimed must be reported separately.
Earlier: Employers were using separate formats, some provided the break-up of exempt allowances, while some did not.
Impact: Now Form 16 will carry each and every detail and amount of exemption on allowances claimed by an employee. Therefore, this increases disclosed items of salaried taxpayers. Employers will report individual amounts of allowances claimed as exempt in Form 16. Exemption on HRA, exemption on LTA, exemption on gratuity, exemption on leave encashment will now appear as separate line items in Form 16.
3. Disclosing additional income earned to employer
New line item: Income (or loss) from house property or income from other sources offered to employee for TDS
Earlier: Any other income (other than salary)
Impact: Earlier employees could disclose any type of income earned by them to their employer and request for TDS deduction via employer to meet their tax dues. However, with the new Form 16, it can be said that now only income (or loss) from house property and income from other sources can be disclosed to the employer for deduction of TDS. Any other income earned, i.e. tax on capital gains or business and profession must be deposited by the taxpayer directly.
4. Standard deduction
New line item: Standard deduction to be reported
Earlier: Standard deduction was not available
Impact: This is a new deduction of Rs 40,000 that has been introduced effective FY 2018-19, therefore a new line item has been added in Form 16 for it.
CBDT has also revised the format of Form 24Q, which a type of a TDS return. Form 24Q is used by employers when they deposit the TDS deducted by them on salary paid to employees. While this may not concern salaried employees directly, it is relevant to understand that this TDS Return format has now been fully aligned with ITR format.
Therefore, the department will now have detailed information of salary income with full breakup of all allowances and deductions claimed. Earlier, this TDS return format, reported all section 80 deductions as an aggregate number. As per new TDS return Form 24Q, a section-wise breakup will be provided by employers to the tax department. Therefore, now the department will have information about all the deduction claimed by a salaried taxpayer separately.
Salaried taxpayers, who will be claiming deductions over and above what they have reported to their employer, must therefore maintain full documentation and proofs to support their claims. As these deductions, even though they may be eligible to claim, will not appear in Form 16 issued to them or Form 24Q submitted by their employer to the department.