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Why is Form 16 Important?

Form 16 is mostly used as proof of timely payment of taxes. It also confirms the authenticity and validity of the employee's earnings.

  • 1,963 Views | Updated on: Mar 20, 2024

One of the most critical and impactful financial tasks that a salary-earning individual has to perform is income tax filing. Because this is a yearly practice, it is beneficial to have a working grasp of the forms, its rules and regulations, and different components. Form 16 is one of the most important forms without which the discussion about income tax filing remains incomplete.

Read on to know what this form is and what is the importance of Form 16.

Why is form 16 important

What is Form 16?

Form 16 is a deduction certificate of income tax at source, or what we commonly call Tax Deducted at Source (TDS). Provided when the employer deducts tax on behalf of the employees, this form includes details about TDS for various transactions involving the deductor and the deductee. As an employee, you can obtain your Form 16 as proof of tax deducted on your behalf by the organization or employer from your salary income and submitted with the Income Tax Department of the Government of India. Your employer’s duly confirmed certification confirms income tax has been deducted as TDS from your salary.

This form is issued annually, usually after the conclusion of the financial year for which it is issued, in compliance with the provisions of the Income Tax Act. If the employer has deducted the tax from the employee’s salary, the employer must issue the certificate to the taxpayer.

If one has to answer the question “what is Form 16,” the answer in simple terms would be: Form 16 is a deduction certificate that facilitates the submission of an ITR because it contains information about a person’s pay and tax exemptions that are conveniently accessible. It has two parts: Part A and Part B, which play an equally important role in making up this TDS certificate.

Why is Form 16 Important?

Having understood what Form 16 is, the next question that taxpayers commonly ask is, “Why is Form 16 required?”

Form 16 is mostly used as proof of timely payment of taxes. It also confirms the authenticity and validity of the employee’s earnings, which are reported to the Indian government. Individuals earning less than ₹2.5 lakhs in a financial year are excused from paying income tax. However, those who earn more than this amount are subject to taxation and may be eligible for Form 16.

This deduction certificate is a proof of income or “income from salary statement” that can be provided to various agencies upon request. It can:

  • Be used to file ITR
  • Help in computing your tax liabilities
  • Be a single document to check all tax-saving investments
  • Assist in loan assessment and approval
  • Help in issuing new credit card
  • Help in visa issuance
  • Assist employers in calculating tax liabilities and what previous employers have deducted when switching jobs.
  • Be used to check if taxes have been overpaid for refund calculations.

It’s important to remember that all paid employees are entitled to a Form 16 from their employers. If your company deducts TDS from your salary, they must present you with Form 16, a TDS certificate validates if the TDS has been deposited with the government. Agencies, clients, and other deductors who deduct your TDS are all subject to the same rules. Such entities should file Form 16 before the end of the fiscal year, on May 31. They could even provide it every quarter.

As a salaried worker, you must understand the importance of Form 16 and file your income tax returns on time to help you avoid repercussions and penalties. Consider the various options and factors related to the form and its filing process to ensure a smooth and hassle-free financial journey.

- A Consumer Education Initiative series by Kotak Life

Amit Raje
Written By :
Amit Raje

Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.

Amit Raje
Reviewed By :
Prasad Pimple

Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors

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