Your Form 16, provided by your employer is the proof for TDS. Lets see how this form can be decoded…
Usually it spans 2 – 3 pages. Lets see them one by one.
First page:
It contains the name and address of employer, your name, your designation with the employer. As already explained, it also has the PAN number of the employer and your PAN number.
It describes the duration of tax deduction in FY. Assessment Year is meant for the IT Office to take up your case for assessing the Information is true or not.
Always Gross is inclusive of all benefits, perks. Net is exclusive of the tax/deductions. Your Gross income is taxable.
Then Form 16 talks about Gross Salary in page 1. (It includes all the salary income you received per month for the whole year and any variable component you would have received every now and then. It also includes any other form of cash benefit received from your employer). At the outset this is the taxable income you have to pay tax for.
Any perquisites received is also added to the taxable income. Hence sub-headings may indicate the same.
Total Gross Salary is arrived at.
Deductions start under section 10. – Conveyance allowance (Rs.800/- per month max) and LTA (Leave Travel Allowance comprising of the amount incurred ONLY for Travel with your immediate family – usually this is 1 month Basic per year).
Another deduction could be the Tax on Employment (also called as Professional Tax).
From TGS – u/s 10 and tax on employment yields “Income chargeable under the head salaries”.
To this, Form 16 adds the “income from house property”. If you have taken a home loan, the EMI you pay monthly has 2 components viz., Interest portion and Principal portion. Income tax relief is available for interest portion (Rs.1,50,000/- per annum maximum for self occupied property) and Principal portion (Rs.1,00,000/- per annum maximum through Section 80C). If self occupied, “income from house property” is –ve and if it is leased out, rental income received is +ve. Either case, it is added to the total income.
So we have arrived at “Gross Total Income”.
Second Page:
Now comes the Deductions. They mean the exemptions that are allowed as per present IT norms, Chapter VI A.
Following are possible:
80 C :- Most of your tax savings instruments fall under this category
Life Insurance Premium.
Post Office Deposits through NSC.
PPF Deposits with SBI.
EPF/VPF through your employer.
Mutual Funds giving long term tax benefits.
Home loan principal repayment done during this FY.
80 CC :-
Pension Fund schemes from Insurance companies and the premium paid for the same.
80 C and 80 CC together for a maximum of Rs.1,00,000/- ONLY.
80 D :-
Medical insurance premium
80 DD :-
Handicapped dependents (an assessment done through a Government Doctor depending on the disability)
80 E :-
Education loan taken for higher studies (even if you are employed) and the interest portion of the EMI paid in FY
Section VI A total will be deducted from the Gross Total Income. This forms “Total Income”.
Tax on the total income is computed as per prevailing norms.
Surcharge on the tax computed above is to be added.
Education Cess (at 3% of the Tax + Surcharge) is computed and to be added.
This forms “Tax Payable”.
To this, they will show another record as “Tax deducted at source u/s 192”.
If tax payable equals tax deducted, your tax liability is clear for the FY under consideration.
Then there must be a table below this, quoting the TDS amount, surcharge, education cess, Cheque/DD, Branch code, Date on which the tax was deposited, challan number. This table gives clarity to you that your tax is paid to Government.
This Form 16 will be signed by a Authorized Signatory from your employer.
Third Page:
Depending on the benefits you receive, there could be an optional Form 12 BA explaining the perquisites and fringe benefits availed and the tax applicable on those instruments.
So, come on, take your Form 16 and start decoding and understand it better.