Here's how the new Form 16 will change income tax return filing this year

The Central Board of Direct Taxes (CBDT) has notified certain changes in Form 16. The new Form 16 is made effective from 12 May, 2019. Employers issuing Form 16 for the financial year 2018-19 will have to issue them in the new format.

Tax returns of the salaried taxpayers for FY 2018-19 (AY 2019-20) can be filed in form ITR-1 or ITR-2. The details of income from salary, allowances exempt, deductions claimed, are in Part B of Form 16, while Part A contains the employer, employee and employment details such as PAN, address etc.

Through these changes in the form 16 , they now carry a very detailed amount  of each and every exemptions on allowances claimed by an employee , thus in way of increasing more transparency by increasing the requirement of disclosures by salaried taxpayers.

1) Details under the new Form 16:

Under the new format of Form 16, Part B has been amended to provide more details about the allowances exempt under section 10 such as house rent allowance, leave travel allowance etc., and deductions allowed under Chapter VI-A of the Act i.e. section 80C to 80U.

Remember that sections under sec.80 of the income tax cover anything from investments in FD’s , PPF,EPFNPS,LIC,EQUITY,DEDUCTIONS FOR MEDICAL INSURANCE,ALLOWANCES FOR THE HANDICAPPED , SENIOR CITIZENS,EDUCATION LOAN, HOME LOAN ETC.

Form 16 will contain information about the below allowances:

• Exempt Allowances required to be disclosed    Exempt under section
• Leave travel concession    10(5)
• Death cum retirement gratuity    10(10)
• Commuted value of pension    10(10A)
• Leave encashment    10(10AA)
• House rent allowance    10(13A)
• Any other amount exempt under section 10Additionally, Form 16 will contain information about the below deductions:
• Deductions required to be disclosed    Section
• Life insurance premium paid, contribution to PPF etc.    80C
• Contribution to pension funds    80CCC
• Employee’s contribution to pension scheme    80CCD(1)
• Taxpayer’s self-contribution to notified pension scheme    80CCD(1B)
• Employer’s contribution to pension scheme    80CCD(2)
• Health insurance premium paid    80D
• Interest paid on loan taken for higher education    80E
• Donations    80G
• Interest income on savings account    80TTA
• Amount deductible under any other provision of Chapter VI-A

2) Impact on ITR filing

 ITR-1

ITR-1 form can be filed by a resident individual taxpayer having total income up to Rs 50 lakh. Such individuals can report income from salary, one house property, income from other sources and agricultural income up to Rs 5,000 in the ITR-1 form.

The ITR-1 form requires broad details of the components of income from salary i.e., salary, perquisites and profits in lieu of salary.

•  However, the form requires complete details of allowances exempt under section 10.
• Therefore breakup of exemption under each allowance such as HRA, LTA, gratuity etc must be separately reported.
•  Each of the deductions under chapter VI-A must also be separately reported. After the notification of the new Form 16, these details would be available from the new Form 16 issued to an employee and thus facilitate the filing of the ITR.
•  If you use an online platform to file your ITR, these details can be automatically populated to your ITR, minimizing your effort and helping you e-file accurately.

ITR-2

The form ITR-2 applies to taxpayers who are individuals and Hindu Undivided Families (HUFs) who do not have income from business or profession. Also, taxpayers who have total income exceeding Rs 50 lakh and are not eligible to file ITR-1 can file ITR-2.

In addition to the details of allowances and deductions required under ITR-1, the ITR-2 form requires complete break-up of the details of various components of salary. It requires specifications of the amounts falling under salary, perquisites and profits in lieu of salary. However, the new format of Form 16 does not provide the break-up of the salary components. This information can be drawn from the annexure to Form 16 provided by an employer. An illustration of the annexure is provided below:

 

Salary components                                                                          Amount   

1. Salary as per provisions of section 17(1)        

a. Basic salary                                                                              XXX   

b. House rent allowance                                                               XXX   

c. Leave travel allowance                                                              XXX   

d. Uniform allowance                                                                     XXX   

e. Special allowance                                                                        XXX

f. Other allowance                                                                            XXX   

Total salary as per section 17(1)                                                                                 XXX

2. Value of perquisites under section 17(2) as per form 12BA                        XXX

3. Profits in lieu of salary under section 17(3) as per form 12BA                    XXX

GROSS SALARY                                                                                                                    XXX

 Income (or admissible loss) from house property as reported by an employee to the employerThe taxpayer can report the income (loss) from house property under the section ‘Details of Income from House Property’ of ITR-1 or ITR-2.

 

    Total amount of salary received from other employers

• An employee will have to provide employer wise salary details ,andsalary earned from each employer during the financial year.
• For this purpose, an employee would need to refer to the annexure to Form 16 received from the respective employer and fill in the details in the ITR-2.

     ITR-1 does not require the reporting of employer wise details of salary as required in ITR-2 above.

Thus, the above changes in Form 16 along with the annexure to Form 16 would provide all the details necessary for filling up the salary data in ITR-1 and ITR-2. Further, under ITR-2, the details would facilitate cross verification of the claims for exemptions under section 10 made by the employees as against the allowances received as components of the salary.