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What is Form 16?
Form 16 is a certificate issued by employer to employee, stating the details of income earned and the taxes deducted on their behalf. It is divided into two parts- Part A and Part B. Part A is the certificate of TDS providing tax deducted at source by the employer. Part B is the annexure containing details of the salary paid, other income if declared by the employee to the employer, tax due and tax paid. It generally covers details like:
- Permanent Account Number (PAN) of the employee
- Tax Deduction and Collection Account Number (TAN) of the employer
- Gross salary
- Income from House Property
- Gross Total Income
- Total Income
- Tax on Total Income
In short having Form 16 will help you with the process of filing your ITR since it has information regarding your taxes paid on salary and investments made during the year. But it is not mandatory to have form 16 to file Income Tax Return.
Thus, you can very well file your income tax returns without having to resort to Form 16. However, you would require the following information/ documents:
- Pay slips (If you have switched one or more jobs in a financial year, make sure you include pay slips from all employers you have worked for in the year)
- All bank statements
- Rent receipts, Leave Travel receipts, municipal taxes receipts
- Details of tax deductions such as LIC receipts, housing loan and education loan statements, donations claimed under section 80G, etc
- Form 26AS
- TDS certificates from Bank in Form 16A
- CTC breakup
- Capital gains statement, if any
Once you have all the above-mentioned information/ documents in hand, you would need to compute the income from the following heads of income:
Step 1: Compute your Salary income
For computing your salary income, you would need the pay slips, the bank statements, rent receipts, leave travel receipts, CTC break up.
The following are the cautious points while computing salary:
- Salary that you receive is after deducting the taxes at source, contributions towards provident fund, pension fund, etc. but, you should not consider the net figure. Instead, gross salary should be calculated for reporting purposes.
- The employer's contribution to PF should not be clubbed while computing the salary as it is exempt under Section 10(11).
- An employee receives many types of allowances in the form of salary while some allowances such as conveyance allowance, medical allowance, HRA, etc. are exempt from income tax while dearness allowance is completely taxable. Hence, the IT Department allows you to deduct the exempt allowances from salary to arrive at the figure of taxable salary
- To claim the HRA deduction, you should refer your rent receipts and CTC break up in which the component of HRA received would reflect. HRA is computed in the following manner:
Minimum of the following is exempt:
- Actual HRA
- Rent paid-10% of Basic salary
- 40%/50% of Basic salary (depending on the city of residence)
- If your employer gives you LTA as part of your CTC, you should claim the same provided the following conditions are satisfied:
- Travel is within India
- Amount of allowance does not exceed economy class ticket fare in case of air travel or AC I ticket fare in case of rail.
- Travelling distance should be the shortest route
- It is limited to two trips in a block of four calendar years
Step 2: Compute income from House Property
For computing this income, you would require the rental receipts received from your tenant, municipal taxes receipt, interest certificate from Bank.
If you own any house property and it is let out, then you must report the rent received therefrom as income from house property in your Income Tax Return. You can claim 30 per cent as standard deduction in case of rental income and you are also allowed to deduct municipal tax amount on your name with respect to property for which the rent is received. Furthermore, if you have paid any interest on housing loan, then you can adjust it in your rental income. Interest payment for your home loan can be claimed upto INR 200,000 even though you are availing exemption under HRA. However, this can only happen when you are working in some other city and you are paying loan for a home in another city. The net figure should be reported as income from house property.
In fact, with Budget 2016, it is proposed to give an additional deduction of interest on home loans of INR 50,000 per annum. However, one needs to be cautious of the below mentioned conditions, which needs to be cumulatively satisfied:
- Value of house property is less than INR 50 lakhs
- Loan amount is upto INR 35 lakhs which is sanctioned during FY 2016-17
The benefit is extended till the repayment of loan continues and the loan can be taken from any institution. This deduction is over and above the deduction of INR 200,000 discussed above.
Step 3: Compute income from Capital Gains
You would require the capital gains statement from the broker in case gains are from sale purchase of securities.
One must report the capital gains (if any) from the sale of mutual funds, shares, flat, land, etc. However, if you invest in equity shares and equity oriented Mutual Funds for more than a year, it would be completely tax free, provided the same are listed on a recognized stock exchange. Also, if there are any capital losses, the same are allowed to be set off against capital gains. The time period for computation is of prime importance here as tax rates differ for short term and long term capital gains. Further, indexation is allowed in case of long term securities and not short term.
Step 4: Compute income from Other Sources
One must also compute his/ her income from other sources that include interest on bank deposits, recurring deposits, Fixed deposits, income received as gift, commission, etc. You can refer your passbook and Form 16A (if any) for information about the sources of income (if any). Aggregate all the sources of income and report it under the head income from other sources while filing your ITR.
Dividends received are also tax free, provided the same is received from a domestic company. Also, amounts received as gifts on the occasion of your marriage or by a relative or under a will is completely tax free.
Step 5: Claim tax saving deductions:
It's time to claim tax benefits which are available under various sections especially Section 80. You can claim investments made under NSC, LIC, tuition fees, PPF, and repayment of principal of housing loan under section 80C. Similarly, donations made to charitable institutions can be claimed under section 80G, and payment made towards premium of medical insurance policy can be claimed in section 80D. Therefore, compile all this information of tax saving investments diligently, so that you don't miss out any chance of tax benefits. The details of few deductions are given below:
Deductions under section 80C:
- FD: You can invest into Tax Saving Fixed Deposits. There is no difference between Tax Saving Fixed Deposits and Regular Fixed Deposits except that the former has a lock in period of 5 years. However, keep in mind that interest on both kinds is taxable.
- Life insurance: This is the most common tax saving option for almost all individuals. Payment of premium towards spouse and children are also included here.
- NSC: You can also invest into NSC. This is also issued for a period of 5 years and the interest rate is also quite high @ 8.5%. However, the interest is not tax free!
- Contribution to EPF: Employees’ contribution towards Provident fund is completely tax free.
- Tution fees: Tution fees for maximum two children can also be claimed as a deduction. However, you should keep in mind that only tution fees is included and not the complete school fees.
- Principal payment for your home loan: If you have taken a home loan, this can be a very useful deduction as the limit is upto INR 150,000.
Deductions under section 80D for medical insurance:
Under this, you can claim a deduction of the health insurance premium subject to specified limits as given below:
- Upto 25,000 for self, spouse and dependent children
- Upto 25,000 for parents, if none of them is a senior citizen
- Upto 30,000 for parents, if one of them is a senior citizen
Also, you can claim a tax deduction for the expense of health check-up. The maximum deduction allowed in this however is little lower at INR 5,000. The health check-up can be of yourself, your family or your parents. Please be cautious here that the deduction of INR 5,000 is not individual, it is the aggregate expense on health check-ups of your family. For instance, if you and your father go for a health check-up and spend a total of INR 5,000, you can claim a deduction of only upto INR 5,000.
Deductions under section 80G for donations:
100% or 50% of the donations made will be allowed as a deduction depending on the type of recognition received by the charitable organization. However, you must have the copy of receipt as well as a copy of the income tax certificate qualifying them for 80G deduction. Quoting of PAN of the institute is also equally important to claim the deduction.
Deduction under section 80E for Education loan:
The loan should be only for self, spouse or children(dependent/independent) and should be taken only from an approved financial institution.
Deduction under section 80TTA for savings interest:
Savings interest upto INR 10,000 is exempt. It is imperative to note here that only savings interest is exempt and not fixed deposit interest.
Step 6: Compute taxes
For computing taxes, you would need to sum up all the income computed in steps 1 to 4 and subtract the deductions as listed in the step 5. The resultant computation will be taxable income. Now, calculate income tax on this taxable income using the income tax slab rates applicable for the year.
Following are the income tax rates for individual taxpayers for Financial Year 2016-17 (Assessment Year 2017-18):
|Where the taxable income does not exceed INR 250,000||NIL|
|Where the taxable income exceeds INR 250,000 but does not exceed INR 500,000||10% of the amount by which the taxable income exceeds INR 250,000|
|Where the taxable income exceeds INR 500,000 but does not exceed INR 10,00,000||INR 25,000 + 20% of the amount by which the taxable income exceeds INR 500,000|
|Where the total income exceeds INR 10,00,000||INR 125,000 + 30% of the amount by which the taxable income exceeds INR 10,00,000|
|Surcharge of 15% of the income tax, where taxable income is more than INR 1 crore*|
|Education cess of 3% of the total of income tax and surcharge, if applicable|
Step 7: Claim tax credits such as advance tax, tax deducted at source, self-assessment tax, if any from Form 26AS
Claiming tax credits is very important else you would be losing out all the benefits of the taxes paid during the year and you would also be liable to pay interest under section 234B and 234C. Whether you have Form 16 or not, it is always advisable to claim tax credits from Form 26AS.
Form 26AS is basically a summary of your taxes deducted at source, advance taxes paid and self-assessment tax paid during the tax year. Income tax department will generally allow a taxpayer to claim the credit of taxes as reflecting in his form 26AS as this is maintained by the income tax department. It can be easily assessed by logging into your income tax portal with the help of your user id (PAN), date of birth and password.
While filing the ITR, it is mandatory to specify the TAN and TDS deducted by the deductor. For advance tax, challan serial number, BSR number of the bank, date, amount, etc. is mandatory. If you get any tax liability, you will end up paying the short fall amount and if there is a refund due, you will receive refund amount directly to your bank account.
Step 8: E-file the Income Tax Return
If you are through with steps 1 to step 7, step 8 is not a difficult step for you. However, this is the most important step.
You would have to visit the income tax e-filing website and e-file the return.