The Importance of Form 16: Time to make a note of it, Taxpayers

Form 16 is a TDS (Tax Deducted at source) certificate which is issued by an employer/bank/company as they deduct tax while making payments to its employee/payment of interest, etc. This topic will deal with The Importance of Form 16.

The Importance of Form 16.

The Importance of Form 16: Time to make a note of it, Taxpayers

When an employer makes payments to its employees, the employer has to deduct TDS at the average rate of Income Tax which has already been calculated on the Income Tax Slab rates for that particular financial year, wherein the payment is made based on the estimated income of the assessee.

This TDS deduction has to be deposited by the employer with the Income Tax department, a post which issues a TDS certificate includes all the details of the tax collected with the Income Tax department, and all the information is present in Form16.

Only TDS deducted from the salary reflects in this form, other TDS deductions reflect in Form16A/Form16B.

Importance of Form 16 TDS Certificate:

TDS Certificate is an essential document as it includes all the details of the TDS which has been deducted and deposited. It is proof of income of an assessee and evidence of tax payment.

What happens,

  1. If your employer doesn’t issue a TDS Certificate?
  2. If the Department of Income Tax doesn’t recognize and prosecute such defaulters?

It is a serious issue if your employer fails to issue a TDS Certificate to its employees, but the tax has already been deducted from their salaries, and this called a violation of legal provisions of the Act.

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Any delinquency by employers by way of not issuing Form 16 -TDS certificates to their employees itself makes the employers accountable to prosecution u/s 405 of the Indian Penal Code (IPC). The Department has to provide details of such defaulters to enable those seeking employment etc. to have prior knowledge regarding the employer’s credibility and compliance with the law. Any negligence in this aspect by the Department of Income Tax is a crucial issue as well.

Example:

The case of Ramprakash Biswanath Shroff Vs. The CIT (TDS), the Writ Petition No.2537 of 2018,  was filed in the High Court of Judicature of Bombay, indicates the implications of TDS certificate not being provided by the Employer.

Few details of the case are provided to enhance the understanding of the issue:

  • The Petitioner, Ramprakash Biswanath Shroff, 65 years of age, is a senior citizen who had to face the problems with the Department of Revenue, due to non-possession of Form 16, by his employer.
  • However, this default wasn’t brought into light by the Department of Revenue, whereas these departments, especially the Department of Income Tax is expected to identify and penalize and take strict action against such defaulters.
  • The Ministry of Finance, the Department of Revenue have been requested to be aware of these lapses, which are a severe issue. The Departments have also been asked to be more transparent and declare and disclose detailed information about such defaulters.
  • During arguments, the attention of the Departments of Revenue, and Income Tax got deducted to Section 405 of the Indian Penal Code,1860 which makes such defaulters accountable to prosecution under the section.
  • The petitioner has filed this case to bring to light the issues he has faced due to this sheer negligence on the part of the employer as well as the Department of Revenue, and in particular, the Department of Income Tax. He demands such defaulters should be penalized and strict actions to be taken against them.
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