The new Form 16 demands salary break-up details, specifying the various tax-exempt allowances and deductions availed by an employee.
With the income tax return forms being notified with additional disclosure requirements, the Central Board of Direct Taxes (CBDT) has issued a notification on April 12, 2019 (effective May 12, 2019) amending the Form 16 (TDS certificate for salary income) and the format of quarterly tax deducted at source (TDS) return.
In the new format of Form 16, there is a specific column for reporting total amount of salary received from other employers, which was not a part of the old Form 16. For allowances exempt under Section 10 of the Income Tax Act as well as for various eligible deductions, specific line item has been provided to capture different allowances/ deductions separately, rather than as a consolidated amount for certain deductions in the previous format.
In the past, revenue authorities had identified a large number of cases with false claim of high refunds. The new format would help in identifying such claims much faster through digital cross-checking and verifying the legitimacy of the exemptions/deductions claimed by the employees directly in the tax return.
The format of quarterly TDS return has also been amended accordingly to incorporate the changes made in the Form 16.
Below is the list of amended disclosure requirements in the new Form 16:
Declaration of income from previous employer
Specific column has been added in the new Form 16 for providing details of salary received from previous employers. Although it was available in the old Form 24Q for filing the quarterly TDS return, only option available in the old Form 16 was to report under generic head ‘Any other income reported by employee’.
Disclosure of exemptions under Section 10
The new Form 16 requires the employers to disclose the details of the exemptions claimed with respect to leave travel allowance, gratuity, commuted pension, leave encashment, house rent allowance, etc., in the earmarked fields as opposed to earlier format which required to disclose the consolidated numbers. This is in line with the changes made in the tax return forms in the previous year which required exemptions to be disclosed separately.
The standard deduction was introduced in the Finance Act 2018. The Form 16 has been amended to include separate line item for capturing standard deduction.
Specific disclosure for additional income
When employees had to report their other incomes, like income from house property, income from bank interest, etc., the option available in old Form 16 was to report under the generic head ‘Any other income reported by employee’. However, the new Form 16 requires disclosing the income/loss from the house property and from other sources, as a separate line time.
Detailed disclosure of deductions
The new Form 16 provides detailed break-up of all deductions including the deductions for employee and employer’s contribution to National Pension Scheme (NPS), medical insurance premium paid, interest on education loan, interest on saving bank account, etc., apart from the deductions under Section 80C, 80CCC and 80CCD which was provided in the erstwhile Form 16.
Disclosure of rebate and surcharge
Separate columns have been added for rebate under Section 87A (a deduction from tax liability for individuals earning income below the specified limit) and surcharge (10% on income tax for income between Rs 50 lakh to Rs 1 crore and 15% on income exceeding Rs 1 crore).
It is a positive move as the CBDT has attempted to standardise the format of Form 16 which will ensure more uniformity across organisations. These changes will help revenue authorities to easily cross verify the details between what has been declared to the employer as compared to what has been additionally claimed in the tax return and identify any incorrect claims. These ongoing changes cast additional responsibility on the employer to ensure that processes are in place to accurately map these disclosures in the Form 16 as well as the withholding returns.
(By Amarpal S Chadha. The writer is tax partner & mobility leader, EY India. Inputs from Shanmuga Prasad, tax director, EY. Views expressed are their personal.)