Got your Form 16 for ITR filing? CA warns high earners against this costly mistake

Many salaried professionals believe that once their employer deducts tax every month and issues Form 16, their income tax obligations are fully taken care of. However, chartered accountant Nitin Kaushik has cautioned taxpayers against blindly depending on Form 16 while filing their Income Tax Returns (ITR).

“Relying blindly on your Form 16 to clear your tax slate is the fastest way to get a surprise demand notice,” said CA Nitin Kaushik.

According to him, employees earning above ₹20 lakh annually often assume that heavy TDS deductions by their companies settle their entire tax liability. In reality, employers can calculate tax only on the salary they pay and the investment declarations submitted by employees.

“An employer only calculates tax based on the salary they pay you and the investment proofs you submit. They have absolutely no visibility into your secondary financial footprint,” Kaushik explained.

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He cited the example of a taxpayer having ₹10 lakh parked in a fixed deposit earning 7% annual interest. This generates interest income of ₹70,000. While the bank deducts 10% TDS, or ₹7,000, the actual tax liability for a person falling in the 30% income-tax slab works out to ₹21,840, including cess.

“The bank paid ₹7,000, but your actual liability is ₹21,840. You still owe the government ₹14,840,” Kaushik noted.

He further pointed out that the Income Tax Department’s technology-driven compliance systems can quickly identify such mismatches.

“The tax department doesn’t guess these gaps anymore. Their automated systems match your return against your Annual Information Statement (AIS) instantly. If the numbers don’t match, you could receive a notice for short payment along with interest under Sections 234A, 234B and 234C,” he said.

Kaushik stressed that taxpayers should review all sources of income, including bank interest, capital gains, dividends, rental income and other earnings, before filing their returns.

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“TDS is merely an advance collection tool, not a final tax settlement. If you treat your Form 16 as the final word without checking your outside income trail, you are simply delaying an unavoidable bill,” he added.

What to do after you receive your Form 16

Receiving Form 16 from your employer is an important step in the income tax return (ITR) filing process, but it should not prompt you to file your return immediately. Since Form 16 serves as the basis for reporting salary income, taxpayers should carefully review the document before submitting their returns.

1. Verify personal details: Check your name, PAN, employer's name, TAN, financial year and assessment year. Errors in these details can affect TDS credit and delay refunds.

2. Match salary figures: Compare the salary details in Form 16 with your payslips and annual salary statement. Ensure that your gross salary, allowances, bonuses and other components are correctly reflected.

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3. Review deductions and exemptions: Confirm that deductions claimed under Sections 80C, 80D and 80CCD, as well as exemptions and home loan interest details, have been correctly included.

4. Check the tax regime: Verify whether TDS was deducted under the old or new tax regime. You can still choose a different regime while filing your ITR, subject to eligibility.

5. Reconcile with AIS and Form 26AS: Match salary income and TDS details in Form 16 with the Annual Information Statement (AIS) and Form 26AS to ensure that tax credits have been correctly deposited.

6. Get errors corrected: In case of any discrepancy, contact your employer's HR or payroll department and seek a revised Form 16 before filing your return.

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