Understanding Form 16 A And B for Salaried Employees
According to section 203 of the Indian Income Tax Act, Form 16 is a certificate that is issued by an employer to an employee. It shows the tax that is deducted (by the employer) from the income that the salaried employees have earned. The tax that is deducted at the source, or the TDS, is paid directly to the Income Tax Department of the Government of India. The certificate shows a detailed record of the amount paid to the employee (the salary) and the amount of tax that has been deducted. It simply proves that your tax has been deducted and deposited with the Income Tax Department of India. The Government of India has set a tax exemption limit of 2,50,000 INR, and if your salary falls below this threshold for the full financial year, your employer will not deduct any tax at the source. As a result, this form won’t be given to the employee. It is important to know the difference between 16A and B, especially if you have to file your tax returns, as all individuals are meant to do.
Sources other than a salary may be the reason for earning an income for some individuals. These incomes may take the forms of interest earned on fixed deposits, mutual fund payouts, bonds, rent earned from property, income earned from contractual positions, and other capital gains earned by individuals. Income tax on these incomes has to be levied, and rates are determined by the Government of India. It is mandatory for financial institutions to deduct source tax. For instance, on bank fixed deposits accruing interest for an individual, the bank will deduct some amount as tax from the interest accrued. A TDS certificate will be issued for the tax that is deducted on incomes such as these, in the example just mentioned, by the bank. This certificate is known as Form 16A.
If you are earning a monthly rent on your own property, say 50,000 INR, your lessee has to deduct tax at source and pay you to rent. In such a case, they will issue Form 16A to you. Another way to deduct tax such as this would be for you, as an owner, to collect rent from your lessee and bear the tax that has to be paid to the Income Tax Department later. Individuals earning a commission as income also have to have tax deducted at the source. In such cases, Form 16A will be issued to the individual by the employer, or from whomever, the commission was earned.
Comprehending the difference between 16A and B can be a difficult task for a layperson, as all the forms, including Form 16 itself, have the common number “16” in their nomenclature. It’s relevant to note that the differences are in terms of purpose and applicability. Form 16B is much like a summary of your salary payment. The different components of your total salary and whatever deductions you claimed are included in this form. The total income that may be taxed is mentioned in this certificate, such as amounts that you may have claimed for different sections like those of 80C, for example (deposits made into a public provident fund account, premiums on life insurance, etc.). In case you have claimed any other deductions such as health insurance (in section 80D), or given donations (section 80G), these are included as well. A comprehensive and exhaustive document of your salary, and any deductions you may be entitled to, this is an important record of your income break-up when you file your tax return.