Form 16 - Meaning, Types and Penalty

In this post, we will be focusing on understanding Form 16 or the TDS certificate.

We will see the following in this post:

• • What is a TDS Certificate?
  • Important points
  • Types of TDS certificates
  • Form 16
  • Components of Form 16
  • Due Dates to issue Form 16
  • Penalty Concerns
  • Pitfalls to avoid while generating Form 16

What is a TDS Certificate?

Section 203 of the IT Act, 1961 makes it mandatory for all deductors/employers to deduct TDS before making any payment. After deducting the TDS, the deductor has to issue a certificate for the deductions. This is called a TDS Certificate.

TDS Certificate is a certificate that provides details of TDS deducted and paid to the government.

So, through the TDS certificate, the tax payee gets to know how much tax is paid on their behalf. A TDS certificate will include payment details, the date of TDS deduction, and the date it is credited to the Government.

Note: There is no need to issue a TDS certificate in certain cases. For example, if the gross annual salary of the employee is not falling in the taxable range, then TDS deduction will not be required as well as the issuance of a TDS certificate is not mandatory.

Important points

1. TDS certificates can be only generated from TRACES.
2. The deductor/employer can digitally sign the TDS certificate using the digital signature.
3. Based on these certificates, the tax payee can claim the credit or refund (if any) in their income tax return filing.
4. Check the details on the TDS certificate. It should contain Name, PAN, Deductors’ TAN, amount paid, TDS amount, etc.

If tax has been deducted at source from the salary paid to the employee, then the employer has to issue Form 16. It will have details of the TDS and deposited to the bank by the employer. So, you can call Form 16 as the Salary TDS Certificate.

If an employee’s annual gross income is Rs 2,50,000 or less, then employers need not deduct TDS. As a result, the employer may choose not to issue Form 16 to such employees.

The details available in Form 16 are submitted through Form 24Q. It is issued annually to the employee i.e. after 4th quarter TDS return filing by the employer.

You can find the format for Form 16 here.

Types of TDS certificates

The two types of TDS Certificates are:

• Form 16 – Annual TDS Certificate given to employees from whom tax is deducted or who have taxable income.
• Form 16A – Annual TDS Certificate given to the vendor/deductee.

In this post, we will only be looking at Form 16.

If you want more details about Form 16A, visit this post – Understanding Form 16 and Form 16 A. 

Components of Form 16

Form 16 consists of 2 parts namely PART A and PART B.

Note: You can download and generate both Part A and Part B from the TRACES portal.

Due Dates to issue TDS Certificates

Employer issues Form 16 within 15 days from the 4th quarter TDS filing due date.

For example, for FY 2019-2020 TDS filing due date is 31st May 2020. Hence, the due date for issuing Form 16 is 15th June 2020.

Penalty Concerns

If the Employer does not produce a TDS certificate within the due date, then they have to pay a penalty of Rs. 100 per day of delay per certificate. However, the penalty amount cannot exceed the TDS amount deducted for the quarter.

With that, we have come to the end of this post. Share your queries and feedback in the comment section below.

Pitfalls to avoid while generating Form 16

There are the following pitfalls to avoid while generating Form 16 –

• Mismatch of PAN details

Manually filling the Form 16 is a time-consuming and tedious process, where you have to enter all essential details, such as PAN card details, Aadhar details and others. If you enter incorrect PAN details, or are mismatched, then it could be the reason for issues for employees and employers. If mismatched PAN details that were input are valid, then the trace website will not show any errors. And it will credit those deductions in the wrongly mentioned PAN card holders’ accounts.

• Incorrect tax calculation

During the calculation of tax, filing monthly and quarterly, TDS deduction might be the reason for human errors. Because of wrong formulas, misplaces words or digits, formats and others. If any digit will be misplaced in the deducted amount, then the calculation will be wrong, and such calculation will be repeated for all employees, then it will be issued for both employers and employees.

• Copy-paste errors 

There are a lot of chances for errors in salary, perquisites, and exemptions while generating the Form manually because copy-paste the data of employees from spreadsheets to MS word.

• Issues of salary breakup 

Manually disappearing the salary of employees is a tedious and time-consuming process that increases the chance of errors and may cause a salary breakup.

• Errors of Form 12BA

Form 12BA is required for perquisites validations. But, when you excess and prepare the form manually, there is a chance to get human errors.

• Format errors

Usually, processing and creating the form16 manual is a time-consuming and tedious process, while using the spreadsheets, different fonts, columns, and margins and the chance to have lots of format errors and positions of digital signature that may cause issues. So, formatting form accurately and correctly is a huge task itself that most payroll excess dread.

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