Filing income tax returns (ITR) has often been a confusing task for salaried people. But now, with the updated format of Form 16, things are expected to become easier and more transparent. The Income Tax Department has introduced detailed changes in the structure of Form 16, which came into effect from 20 February 2025. These changes will apply for the financial year 2024-25 and assessment year 2025-26.
Let’s understand what’s new and how these changes will help in smooth tax filing.
What Is Form 16 and Why Is It Important?
Form 16 is a certificate issued by companies to their employees. It acts as proof that the employer has deducted tax from the employee’s salary and deposited it with the government. It also gives a full summary of your income, tax deductions, and exemptions under various sections of the Income Tax Act.
Form 16 helps salaried individuals file their ITR correctly. Without it, many people find it tough to figure out what part of their salary was taxed or exempted.
Two Key Parts: Part A and Part B
- Part A includes the employer’s details like TAN and PAN, and also shows the total TDS (Tax Deducted at Source) deducted and deposited.
- Part B gives a detailed salary breakup, including all allowances, deductions (like under Section 80C, 80D, etc.), and total taxable income.
What Has Changed in the New Form 16?
The latest version of Form 16 now presents salary and tax details in a clear and well-structured format. These changes have been made to reduce confusion and mistakes while filing the ITR.
- Detailed Allowance Section: Now, employees will get to see which part of their salary was taxable and which part was tax-free (for example, HRA, LTA).
- Better Deduction Clarity: All deductions like investments under 80C, donations under 80G, health insurance under 80D, and others will be shown separately.
- Transparent Exemption Details: Salary exemptions will now be more clearly listed. This helps people know exactly how their tax was calculated and reduces chances of errors in ITR.
These changes are aimed at making the ITR process easier, especially for those who file returns on their own without a CA.
Form 24Q Also Updated for Employers
Companies file Form 24Q to report the salary details and TDS deducted for their employees to the Income Tax Department. A new Column 388A has now been added, which makes salary reporting more accurate. This will ensure that the Form 16 given to employees is error-free and detailed.
This change also improves coordination between the employer’s reporting and the employee’s ITR filing, reducing mismatches.
Important Update for Agniveer Scheme Participants
There’s an important update for people working under the Agniveer scheme. The amount deposited by the government in the Agniveer Corpus Fund will now be shown as part of salary in Form 16. But there’s no need to worry — this amount will still get full tax exemption under section 80CCH. This move is mainly for record purposes and won’t increase your taxable income.
Tax on Rent-Free Housing by Employer
If your company gives you a rent-free house, it will now be considered a perquisite, or a salary benefit. This means the value of this benefit will be added to your taxable income. It’s important to know this so that you can calculate your tax properly.
This change also ensures that people receiving extra benefits from the company pay tax fairly, just like others.
