The CBDT has notified a new format for Form 16 the salary TDS certificate requiring a detailed break up of tax exempt allowances paid to employees and also all tax breaks claimed by him/her. The earlier format allowed companies to give consolidated figures or break-up in different formats for both of these thereby leaving some ambiguity regarding their individual composition.

1. Concurrent changes have been made in the format of the TDS return filed by companies with the tax department to allow the tax man to cross check an employee’s ITR, Form 16 and the company’s TDS return easily.

2. The new format will allow the tax department to view a detailed breakup of the income and tax breaks claimed by a salaried person at the first instance itself. Consequently, any discrepancy between the income and deductions shown in Form 16 and the ITR filed by the person can be immediately spotted. This new format is likely to help the department cross checking of figures too because it takes away the leeway that companies earlier had in providing the breakup of income and deductions and fixes the format for providing these.

3. The new format for Form 16 was notified by the Central Board of Direct Taxes (CBDT) via a notification dated April 12, 2019. The format specified in the notification comes into effect from May 12, 2019 which is well before the last date for issue of Form 16 or the TDS certificate for salary by employers. Therefore, those issuing Form 16 after this date will have to do so in the new format.

4. As per the changes notified, Form-16 issued by an employer will have to specify the nature of tax-exempt allowances paid to the employee. The previous format of Form-16 did not provide the specific list of tax-exempt allowances on which the salaried person was not required to pay any tax. Now as per the revised format, the employer will have to specify the nature as well as amount of allowances which are exempt from tax. Similar details have also been asked for in this year's ITR-1. The revised format provides a list of allowances such as travel concession or assistance under section 10(5), house rent allowance under section 10(13A) and so on that are exempt under the Income Tax Act.

5. In existing Form 16 (Part B), the employer had an option to provide a description of the exempt allowance. Consequently, every organization had created different formats as per their requirements, which resulted in different formats of Part B of Form 16. The new Form 16 (Part B) has removed this option to write-down the description of exempt allowances.

6. The move is expected to make it easier for the department to cross check information from ITR-filed by the taxpayer, TDS returns filed by the employer for the tax deducted and Part-B of Form-16. Apart from making changes in the Form-16, the notification has made concurrent changes in the format of TDS returns filed by the employer for the tax deducted from salary paid to employees.

7. The Part B of form 16 has been amended to provide the section wise break of various exemptions allowed under section 10 of the Income Tax Act. This is in line with the recent changes made in the tax return forms (ITRs) last year (i.e. A.Y. 2018-19). The new forms also ask for more elaborate section wise break-up of various Chapter- VI-A deductions.

8. Individual Tax Return forms ITR, it was bit difficult for the tax department to track the tax evaders who were resorting to false claim (exemptions/deductions) to reduce the tax liability.

9. In recent past, there were many instances where the tax department unearthed many fraud cases where few tax professionals helped the taxpayers claiming unreasonably high refunds by resorting to false claims. Therefore, the tax department has also made similar changes in Form 24Q- TDS return to bring uniformity across all the sources of information. This is with an intention to track the tax evaders who resort to illegal means for reducing the tax burden.

10. Form-16 will also provide the break-up of all the tax-related deductions under section 80C to 80U you have claimed from salary paid by your employer. The earlier Form-16 format specified the total amount of deductions that have been claimed as per chapter VI-A of the Income Tax Act by the employee from employer.

The new format will also provide the detailed break-up of deductions that have been claimed. Similar changes have been made in respect of deduction available under Chapter VI-A and losses under the head house property. These changes would ensure that organizations follow common structure for TDS certificates and employees find it convenient to file the tax return on basis of TDS certificates.