Recognize Form 16 - Be An Informed Tax Payer
Many of us are familiar with know Form 16 distributed by our employers before April
30th each and every year that provide information on the net income earned, and tax deducted at source and paid for your government. This certificate proves useful in filing tax returns. Additionally banks also issuing Form 16 and Form16A to pension holders and people who earn interest income, with no Form 16 required when TDS just isn't deducted from salary. Being aware of Form 16 helps us to be a well-informed taxpayer and learn better tax planning.
The 13 components of Form 16 are:
1.PAN which is an acronym for Permanent Account Number, a 10 digit alpha-numeric code that is definitely generated from the Income Tax Department of India. It really is mandatory for everyone - Non Residential Indian, PIO & businesses that wishes to trade, file and pay taxes, invest, purchase and sell property, open a demat or bank account to have this number in India.
2.TAN is ideally referred to as Tax Break and Collection Account Number is another mandatory 10 digit alpha-numeric number which is very required for all persons and corporations that are responsible for collecting taxes. It proves beneficial to note that this number is unique in the case of different companies.
3.Gross salary, the common expression used in reality includes all regular incomes in an employees remuneration. It could include allowances, overtime pay, commissions, and bonuses, with all of other amounts before the deductions are made.
4.It is best to know that perquisites are only additional benefits in addition to the fixed salaries. Known popularly as perks this term could incorporate rent free accommodation, loans at subsidized rates among others.
5.Profits rather than salary are only payments given as an alternative to salary which is given by at or in connection with retrenchment or termination of employment. This item forms a part of taxable income and includes gratuity, commuted value of pension, retrenchment compensation. However the contribution made by the staff member or interest there on is not taxed.
6.Next allowances in Form 16 are certain payments made or used on employees for bearing of certain expenses. It could include allowances like medical allowances, and also travel allowances which can be generally taxable at the disposal of the employees.
7.House rent allowance or HRA In Form 16 refers to a unique allowance paid to employees to fulfill the expense of housing. There is certainly tax exemption on HRA and it's also limited by minimal of either the HRA received from employer, or rent paid over 10% of her salary, or 50% of salary in metropolitan cities and 40% in other cities. The term salary here includes basic, dearness allowance and other commissionsput together, this exemption unavailable to people which do not pay rent.
8.It is better to comprehend conveyance allowance as a possible allowance paid to employee to fulfill commuting expenses between his/her home and location of work. We have a maximum exemption of Rs.800, with a special provision with an orthopedically handicapped employee until Rs.1600.
9.The term medical allowance compensated for medical treatments and medicines is fully taxable. However reimbursement of medical expenses against submission of bills could easily get you a maximum exemption of Rs.15000 annually.
10.The allowance received to employees for entertainment services or entertainment allowance is allowed as a deduction for government employees. However in other cases it's possible to avail of deduction like a least of actual allowance received, or 1/5th of salary excluding all the other allowances and perquisites or Rs.5000.
11.Deductions as in
Form16 is given as an incentive distributed by the government to invest in certain long lasting savings schemes. Including long-term savings for retirement, insurance schemes and others giving regulations.
12.All taxes in India are subject to an education cess that is definitely 3% of total tax payable. This contribution is made for the Secondary greater Education development in the Indian economy.
13.It is lastly important to understand the relief granted to employees when wages are paid in arrears in the lump sum most commonly known as Relief u/s 89. This includes salaries received in arrears/advance, family pension received in arrears, retirement benefits including gratuity, commuted pension, VRS and retrenchment compensation.
by: Tre p Dixon
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