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Form 16: New format for salary TDS certificate makes it difficult to fudge income, tax breaks
April, 18th 2019

The CBDT has notified a new format for Form 16 – the salary TDS certificate – requiring a detailed break up of tax exempt allowances paid to employee and also of all tax breaks claimed by him/her. The earlier format allowed companies to give consolidated figures or break-up in different formats for both these thereby leaving some ambiguity regarding their individual composition.

Concurrent changes have been made in the format of the TDS return (details of TDS from employees’ salaries) filed by companies with the tax department to allow the tax man to cross check an employee’s ITR, Form 16 and the company’s TDS return easily.

Last year the tax man had detected several cases of false claims of large income tax refunds made by some employees which is likely to be another reason for this streamlining exercise which is aimed at removing all space for such manoeuvres in future.

The new format will allow the tax department to view a detailed break up of the income and tax breaks claimed by a salaried person at the first instance itself. Consequently, any discrepancy between the income and deductions shown in Form 16 and the ITR filed by the person can be immediately spotted. This new format is likely to help the department digitise cross checking of figures too because it takes away the leeway that companies earlier had in providing the break up of income and deductions and fixes the format for providing these.

The new format for Form 16 was notified by the Central Board of Direct Taxes (CBDT) via a notification dated April 12, 2019. The format specified in the notification comes into effect from May 12, 2019 which is well before the last date for issue of Form 16 or the TDS certificate for salary by employers. Therefore, those issuing Form 16 after this date will have to do so in the new format.

As per the changes notified, Form-16 issued by an employer will have to specify the nature of tax-exempt allowances paid to the employee. Abhishek Soni, CEO, tax2win.in, a tax-filing website says, "The previous format of Form-16 was not providing the specific list of tax-exempt allowances on which the salaried person was not required to pay any tax. Now as per the revised format, the employer will have to specify the nature as well as amount of allowances which are exempt from tax. Similar details have also been asked for in this year's ITR-1." The revised format provides a list of allowances such as Travel concession or assistance under section 10(5), house rent allowance under section 10(13A) and so on that are exempt under the Income Tax Act.

Chartered Accountant, Naveen Wadhwa, DGM, Taxmann.com says, "In existing Form 16 (Part B), the employer had an option to provide a description of the exempt allowance. Consequently, every organization had created different formats as per their requirements, which resulted in different formats of Part B of Form 16. The new Form 16 (Part B) has removed this option to write-down the description of exempt allowances. Now the employers have to mention the amount of exempt allowance before earmarked fields."

The move is expected to make it easier for the department to cross check information from ITR-filed by the taxpayer, TDS returns (Form 24Q) filed by the employer for the tax deducted and Part-B of Form-16. Apart from making changes in the Form-16, the notification has made concurrent changes in the format of TDS returns filed by the employer for the tax deducted from salary paid to employees.

Chetan Chandak, Head of Tax Research, H&R Block India says, "The Part B of form 16 has been amended to provide the section wise break of various exemptions allowed under section 10 of the Income Tax Act. This is in line with the recent changes made in the tax return forms (ITRs) last year (i.e. A.Y. 2018-19). The new forms also ask for more elaborate section wise break-up of various Chapter- VI-A deductions. Though many corporates/employers were already providing this break in the Form TDS return - Form 24Q and Individual Tax Return forms - ITR, it was bit difficult for the tax department to track the tax evaders who were resorting to false claim (exemptions/deductions) to reduce the tax liability."

Wadhwa says, "In new Form 24Q, it is mandatory to furnish the PAN of the lender in case any deduction has been claimed in respect of housing loan taken from a person other than a Financial Institution or the Employer. Earlier, it was optional."

Chandak says, "In recent past there were many instances where the tax department unearthed many fraud cases where few tax professionals helped the taxpayers claiming unreasonably high refunds by resorting to false claims. Therefore the tax department has also made similar changes in Form 24Q - TDS return to bring uniformity across all the sources of information. This is with an intention to track the tax evaders who resort to illegal means for reducing the tax burden."

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