HOW TO DECODE YOUR FORM 16
If you are an employee, then by now you should have received your Form 16. This form is important to you from the tax filing point of view, as it shows how much TDS has been paid on your behalf by your employer through the year, by deducting it from your salary on a monthly basis. This form is your proof of TDS.
However not everyone understands or even goes through their Form 16 to see if everything is correct. Let’s go through the different components of this very important form, and we’ll see how simple it all really is.
Components of your Form 16
The first page of your Form 16 will begin with relevant details under Part A, such as:
- Your employer’s name and address
- Your employer’s Permanent Account Number (PAN) and Tax Deduction Account Number (TAN)
- Your name and designation
- Your PAN
- Which year the Form 16 is for (for the period 01/04/2010 to 31/03/2011), as per assessment year 2011-12
It will move on to provide a tabular summary of your tax deducted per quarter.
The tax deducted by your employer and the tax remitted by your employer on your behalf should be equal. If the company you are working for deducts tax from you, and does not pay it to the Government on time, then the company has to pay 1.50% interest per month of delayed payment.
Even if the company does not deduct tax from you or accidentally deducts less tax from you than it should, it still has to pay tax to the Government, which it will then recover from you.
We move on to Part B – Details of Salary Paid and Any Other Income And Tax Deducted
Part B begins with your Gross Salary – how much you have earned during the year.
Your Gross Salary can be found by going through your full financial year’s salary slips (April 2010 to March 2011 – both months included), and adding any additional income such as perquisites, or variable pay i.e. Performance Linked Pay (PLP) that you might have received during the year.
You should also include any “Profits in lieu of Salary” such as the full and final settlement in case of resignation / termination from a former employer, or if you are covered under a Keyman Insurance Policy and you have received a payout from the policy, or from a provident fund.
You should subtract any meal coupons you have opted for during the year as this is not taxable income.
Gross Salary = Total Monthly Gross Salary received
+ Gross Performance Linked Pay received, if any
+ Gross Perquisites received, if any
+ Gross Profits in lieu of salary received, if any
- Meal Coupons opted for, if any
Remember, your gross salary is taxable.
The next step is to deduct your allowed deductions.
These include, subject to their own rules, the following:
- Conveyance Allowance ( 800 per month maximum)
- Leave Travel Allowance (LTA) that you have claimed during the year, supported with actual travel bills
- Medical Allowance that you have claimed during the year, supported with actual medicine bills
- House Rent Allowance (HRA), supported with actual rent receipts
- Payment from an approved Superannuation Fund / Provident Fund
- Amount received due to Voluntary Retirement
- Retrenchment compensation
… and so on.
If you have a home loan on which you are paying EMI, this should be incorporated under ‘Income from House Property’ as a negative figure, as it is not an income but an expense for you.
Your EMI has 2 components in it, interest payment and principal repayment. Each one is tax deductible up to a certain limit, depending on whether your property is self occupied or you have leased it out. If it is self occupied, interest payment is tax deductible up to 1,50,000 per financial year, and principal repayment is tax deductible up to 1,00,000 per financial year. If it is leased out (aka let out property), interest payment is fully deductible, principal is deductible up to 1,00,000 per financial year, and the rental income you have received is added to your total income for the year.
So this gives us your “Gross Total Income”.
This is followed by your various deductions including under Section 80C, 80D and so on. Let’s see what these deductions are:
|INCOME TAX DEDUCTION ||MAXIMUM DEDUCTION ALLOWED PER YEAR |
|SECTION 80C |
|Life Insurance premium || |
Actual amount contributed / invested, up to 1 lakh
|Contribution to Employee Provident Fund (EPF) |
|Contribution to Public Provident Fund (PPF) |
|National Savings Certificate (NSC) |
|Unit Linked Insurance Plans (ULIPs) |
|Repayment of Home Loan Principal |
|Equity Linked Savings Schemes (ELSS) |
|5 Year Bank FDs |
|Pension Funds |
|SECTION 80CCF || |
|Long Term Infrastructure Bonds ||Actual amount invested, up to 20,000 |
|SECTION 80D || |
|Mediclaim Premium for self and family ||Actual premium paid, up to 40,000 (if both self and parents are senior citizens) |
|SECTION 80DD || |
|Expense on treatment of a disabled relative, or payment of insurance premium for said relative || 50,000 or 1 lakh depending on severity of disability |
|SECTION 80DDB || |
|Expenses incurred on medical treatment for yourself or for a dependent relative (not necessarily disabled) ||Actual expense incurred, up to 40,000 (Up to 60,000 in case of senior citizen) |
|SECTION 80E || |
|Interest of an education loan taken for yourself, your spouse or your child ||Full interest amount paid during the year, for a limit of 8 years |
|SECTION 80G || |
|Donation to certain charitable institutions ||100% or 50% of donation given, depending on the institution, subject to limitations |
|SECTION 80U || |
|Deduction in case of a disabled assessee || 50,000 or 1 lakh, depending on severity of disability |
Depending on what investments you have made, these will be deducted within certain rules, from your Gross Total Income.
Gross Total Income less your deductions gives you your Total Income.
Once you have this figure, tax is calculated on this income as per current tax norms. Surcharge and Education Cess are added, and voila – you have arrived at your Tax Payable!
If the tax payable figure is equal to the tax deducted figure, your tax liability is clear for the Financial Year under consideration.
Finally, you will have a table showing details of tax deducted at source, surcharge and education cess, date on which tax was deducted, chalaan number, and so on. This will prove to you that your employer has deducted tax and paid it to the Government.
If you receive perquisites, these will be detailed on an additional page, under Form 12BA.
And that’s it! You now know all the components of your Form 16!
If you haven’t filed your tax returns yet, and have questions on how to file your returns, our article titled Filing Your Return of Income will help! You can also file your returns online simply by accessing www.personalfn.com.
So go ahead, understand your Form 16, and file your returns online!