Various uses of Form 16

Form 16 is a TDS certificate issued by your employer to validate the financial deductions they have made. It helps with Income Tax Returns, acts as income proof for clearing tax credit, and helps while processing your visa.

When an employer deducts TDS on salaries, it is a prerequisite to issuing a TDS certificate on or before FY May 31 as per the Income Tax Department. This must be issued once a year, like banks that issue TDS certificates regarding tax that they deduct from your interest income.

Why is Form 16 important

Primarily, Form 16 acts as proof of tax paid on time. It also verifies the authenticity of the income earned by an employee, validated and recorded with the Indian government. That said, individuals, earning a salary of or less than Rs. 2.5 lakh in a financial year (FY) are exempt from income tax. Anyone earning a higher salary is liable to pay tax and is eligible for Form 16.

Additional Read: Why Form 16 is required

Uses of Form 16

Form 16 can be beneficial while filing your taxes. Here are some of its uses and advantages:

Help in filing Income Tax Returns

Form 16 gives a breakup of your salary, including bonuses and allowances, along with details of your tax-saving investments declared by you to your employer. These details are crucial while filing your Income Tax Returns online.

Additional Read: How to file Income Tax Return online with Form 16

Verify that the employer has deposited TDS to the government

Your employer/ deductor can issue you a Form 16 only when they have deposited TDS to the Central Government Account. It proves that they haven’t misused the amount deducted from your salary as TDS.

Compute your tax liabilities

While the responsibility of TDS is on the employer, it is your responsibility to pay your taxes. There are instances where the employer deducts tax on the incorrect/ suppressed information given by you. In this scenario, you may have either underpaid or overpaid your taxes. Form 16 helps you compute your tax liabilities; enables you to pay any remaining tax or seek refunds by filing your returns on time.

Credit card

Presenting Form 16 for the last two years for new applicants is crucial while applying for a credit card.

Form 16 acts as proof of income and a statement of income tax liability, which helps credit card issuers assess a customer's financial position. Financial institutions use this certificate to determine the credit limit for the borrower. A high income may enable a customer to take advantage of a higher credit card limit.

Loans

Individuals may need to show the Income Tax Returns they filed when they apply for a home, personal, or vehicle loan. Form 16 gives a breakup of your salary and your tax liabilities – a handy tool that helps assess your loan application.

Combined with Form 16A and 16B, Form 16 also gives a good idea of your tax-saving investments and any other periodical investment schemes that may be sapping your money. It allows the lender to assess your financial health and your loan repayment capacity.

They can calculate the maximum loan amount they can offer, the tenure and the interest rate through this. Usually, an excellent financial statement attracts cheaper interest rates.

Visa processing

Foreign embassies and consulates could ask about Form 16 for the last two years to understand the financial stability of a salaried individual and assess if they can manage finances while travelling abroad. They may also ask for proof of Income Tax Return since you may have other income sources like returns on fixed deposits, mutual funds, and property sales.

If you have switched your job, you can ask for Form 16 from your previous employer to help the next employer assess your tax liabilities and let them deduct tax accordingly.

The employer/ deductor is bound by law to issue you the Form 16 if your income from your salary is above Rs. 2.5 lakh p.a. If you do not receive it by mid-May, remind your employer to issue it to you at the earliest so that you can check for any irregularities and file your returns on time.