The income tax department has introduced changes to the Form No. 16 format for 2012-13 by way of its recent circular (Circular No. 4/2013 [F.No.275/34/2011-IT(B)]). As you may be aware, the Form No. 16 comprises two sections – Part A, which presents information on the income tax deducted and remitted across four quarters in a year and Part B, which presents information on the salary paid, rebates and exemption and the total tax payable.
So far, employers have been issuing Form No. 16 with both Part A and Part B.
What does the circular say?
As per the tax department circular referred to above, employers, for tax deducted on salary on or after 01-Apr-2012 (Form 16 for 2012-13 and later), should download Part A of Form No. 16 from the “TDS Reconciliation Analysis and Correction Enabling System” site (commonly referred to as the Traces website – www.tdscpc.gov.in), attach Part A to Part B (to be prepared by the employer), and issue Form 16 (with both Part A and Part B) to the employee. Part A of Form No. 16 downloaded from the Traces site contains a unique TDS certificate number. Employers have to necessarily use only the Part A downloaded from the Traces site and can no longer create Part A of Form 16 on their own.
The income tax department by way of an earlier notification (dated 19-Feb-2013) has prescribed changes to the format for Part A and Part B of Form No. 16.
Employers should verify the data in Part A before issuing Form No. 16 to employees. The Part A of Form 16, as generated from the Traces site, contains the following information.
- Employee name, employee PAN, employer name, employer PAN and TAN.
- Salary paid, tax deducted, tax remitted, Form 24Q acknowledgement number for the 4 quarters.
- Details of tax remitted (BSR code, date of remittance, and challan serial number).
- Status of challan matching with OLTAS (Final, Unmatched, etc.).
The income tax department has enabled generation of Part A of Form 16 in the Traces website on the basis of the quarterly filings (Form 24Q) made by employers. Organizations are already downloading TDS certificates for tax deducted on non-salary payments (Form No. 16A) from the Traces website. From tax year 2012-13 onwards, salary TDS certificate (Part A of Form No. 16) too has been brought into the Traces site.
Steps for preparing Form No. 16
The Traces website presents screenshots on how Part A of Form No. 16 can be downloaded. Click here to take a look at an e-tutorial for downloading Part A of Form No. 16 from the Traces site.
- File Form 24Q for the last (and earlier) quarter(s) of 2012-13.
- Login to the Traces website with your company login information and download Form 16 (for 2012-13) for all your employees – a single zip file containing Form 16 data for all employees in a password-protected text file.
- You can open the text file in an Excel sheet and check the employee-level data with regard to salary paid, tax deducted and remitted, etc. You can do a comparison with Form 24Q information in an Excel sheet using Excel Lookup functions.
- Please ensure that challan status for all challans across employees is “F” which means that the challans are matched. In case any of the challans in “unmatched,” please check whether challan details have been correctly stated in the quarterly (Form 24Q) filings.
- You can create individual PDF files for employee Form No. 16 by using the PDF generation utility which can be downloaded from the Traces site.
- If you wish to use the digital signature of the authorised signatory in your organization to sign Form No. 16, you can upload the digital signature in the PDF generation utility available on the Traces site. You can also choose not to use digital signature and issue a hard copy of Form No. 16 to employees with the physical signature of the authorised signatory.
- Please create Part B of Form No. 16 and merge it with Part A downloaded from the Traces site.
- Submit Form No. 16 to employees in your organization.
While we appreciate the tax department’s initiative to enhance the accuracy of salary TDS certificate, we are concerned that the department has not given us adequate time for understanding and adopting the new Form 16 process, given the deadline of 31-May-2013 for Form 16 issuance for 2012-13. Organizations that employ thousands of employees may find it tedious to do a physical check of information presented in Part A in PDF format. The only easy and efficient way of checking the data in Part A of Form No. 16 is by way of a software checking the accuracy of Part A information. The department does provide Part A data in the text format which could be perused by software programmes to do the accuracy check against the data stored at the company’s end. However, whenever a new system is developed, it would be useful to take adequate time to verify if everything is in order before taking the system live.
A suggestion to the income tax department
Given that organizations submit the Part B information (to a large extent) to the income tax department in Annexure II of the 4th quarter Form 24Q, the department could consider creating both Part A and Part B from the Traces website. Better still, the income tax department can even do away with the practice of employers issuing Form No. 16 to employees if employees can download Form No. 16 in full from the Traces site.
In addition, if the tax department has all information required for tax return filing, particularly for salaried employees many of whom may not have income from other sources, the tax department can also consider creating pre-filled tax return (say, ITR-I) which can simply be signed and filed by salaried assessees who do not have other sources of income. Pre-filled income tax return is already a reality in a number of countries including Denmark, Sweden and Spain.
HRWorks, our online payroll platform, handles requirements related to generating and transmitting Form No. 16 as per the recent circular from the income tax department. If you think your organization may have a need for our online payroll software or our payroll services, please do get in touch with us.