10 Frequently Asked Questions (FAQs) on Income Tax and Salary

10 Frequently Asked Questions (FAQs) on Income tax and salary

01. What is Form No. 16? While paying salary to you, the employer deducts some amount of salary as income tax (Tax Deducted at Source or TDS) and deposits this amount on your behalf to the Government. After the end of year, your employer gives the statement of your salary, any other income and tax savings to you in a standard form and this form is known as Form No. 16.

02. What is the difference between Form No. 16 and I-T Return? Income Tax Return or I-T Return or ITR is a form to be filled by a taxpayer giving information about her sources of income, amounts of income earned and taxes paid by her in a particular financial year. Form No. 16 is between you and your employer, whereas the I-T Return is to be submitted by you to the Government.

03. Can I compute my tax at lesser amount than shown in Form 16? Yes. If you have missed on certain tax savings in Form 16 (happens often), it is possible that in Form 16, your tax is computed more than your true liability. Taxbuddy combs through all the available saving options and gives a lot of importance to reduce tax while filing ITR.

04. What will happen if I do not share my PAN share the wrong PAN with my employer? Your employer is responsible for deducting and depositing your tax. If you don’t share your PAN or share wrong PAN, then he may deduct tax at highest rate of 20% on your salary and pay to the Government.

05. Besides my salary income, do I need to inform my employer about my other incomes? You may inform your employer so as to enable him to determine the correct tax-deductible from your income. In case you don’t provide these details to your employer, you need to pay advance tax or self-assessment tax on such income.

06. What is Part A and Part B of Form No. 16? The Form 16 is as per the standard format prescribed by Income tax rules. As per that format, it has two parts, Part A and Part B. The Part A contains the basic information about the employer and employee like his address and TAN and PAN and the gross amount of income given by him to employee. In Part B, the complete details about different income sources, amounts of income and claimed deductions and the taxes deducted thereon are mentioned. Part B is most important for filing I-T Return.

07. In Form No. 16, there are mentions of section 17(1), 17(2) and 17(3), what do they mean? The salary package you receive may contain different components like allowances, contributions to different funds, medical benefits, commission on profits etc. The different components of salary income are separated under three sub-sections of section 17 of the Income tax Act. These 3 sub-sections are 17(1), 17(2) and 17(3). The 17(1) contains basic salary, DA, HRA, TA, LTA etc. The 17(2) contains valuation amounts of perquisites like rent free accommodation, ESOPs, motor car etc. The 17(3) comprises of salary profits like commissions, fees or bonus.

08. What do you mean by ‘perquisites’? In simple language these mean ‘perks’ of employment. These are generally non-monetary components of your salary package. There are different perquisites like rent free accommodation, use of motor car, club memberships etc. These are valued in money terms for inclusion in taxable salary. Such valuation is carried out as per Income tax Rules.

09. What is meant by ‘profits in lieu of salary’? An employee sometimes receives bonus or commission or remuneration for something that he has done during the course of employment. This is known as Profits in lieu of Salary. These are fully taxable.

10. What is meant by Standard Deduction? As per Law and Rules every salaried taxpayer is entitled to tax benefit on salary income of ₹40,000/-. Hence, if your salary income is coming to ₹540,000/- you are required to pay tax only on ₹500,000/-. The amount of ₹40,000/- is excluded. This is called standard deduction.