Form 16 works as proof that your employer or deductor has deposited the TDS amount with the Central Government Account and has not conducted any fraud or siphoned off the amount for any other use.
That is the essential meaning of Form 16. Along with these benefits, there are so many other uses of Form 16 that you should know.
- Helps in filing Income Tax Return
A Form 16 contains the details of the tax already deposited on your behalf. Thus, you can deduct the TDS and pay the remaining tax amount when you calculate your tax liability. It also gives you the details of your employer’s PAN and TAN number you need when filing your income tax returns.
- Proof of Income
Form 16 is your salary TDS certificate if your income from salary for the financial year exceeds the basic exemption limit of Rs. 2,50,000 your employer is required, by the Income Tax Act, to deduct TDS on your salary and deposit it with the government.
- Document stating how your tax was computed and check any anomalies
While the onus of TDS is on the employer, it is your responsibility to pay taxes. The employer may have deducted tax on the incorrect/suppressed information given by you. In this scenario, you may have either underpaid your taxes or overpaid your taxes. From 16 helps you compute your tax liabilities and help you pay the remaining or seek a refund by filing your returns on time.
- One place document to check all your tax-saving investments
To avoid higher TDS on your salary, employees need to submit the investment/expenditure proof to back up their investment declarations to the employers.
- Loan assessment and approval
Individuals may need to show the Income Tax Returns they filed when they apply for a home loan, personal loan, or vehicle loan. Form 16 gives a breakup of your salary and your tax liabilities, and it comes in handy while assessing your loan application.
Combined with Form 16A and Form 16B, Form 16 gives a good idea of your tax-saving investments and any other periodical investment schemes that may be draining your money. It allows the lender to assess your financial health and your loan repayment capacity.
Through this, they can calculate the maximum loan amount they can provide to you, for what tenor, and at what interest rate. Usually, a good financial statement attracts cheaper interest rates.
- Visa issuance
Foreign embassies and consulates may 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 traveling 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.
- Switching jobs helps the next employer compute your tax liabilities based on what your previous employer has already deducted.
- Since it is a document of the tax credit, you can check for any overpaid taxes, which will help you in claiming refunds.
Filing your Income Tax Returns is one of the most important things to do, making Form 16 a prerequisite. With its different components, Form 16 enables you to streamline the processes for filing your ITR. It is hence, very important to understand the meaning of Form 16 and its intricacies carefully. Now that you are aware of the benefits of Form 16 filing ITR will be more efficient.
