As this is Income Tax filing July month this is more relevant to salaried taxpayers, especially the new taxpayers, have the lot of questions about interpreting Form 16, Its uses and how it can be referred during the preparation of Income Tax Return.

Here is the list of 15 questions & answers that will help you understand Form 16 and its impact on tax filing.

15 queries about Form 16 answered and its impact on tax filing

1. What is Form 16 and how it is different from Salary Certificate?

Form 16 is a certificate which is issued by the employers to their employees. It is a Tax Deduction at Source (TDS) certificate which shows the salary details and the tax deduction with various components.

The employer will provide Form 16 or TDS certificate if your salary paid is more than the maximum exemption limit. For example, if the maximum exemption limit for tax on salary is Rs 250,000, while the salary paid is Rs 200,000, the employer will issue a salary certificate. If the salary paid is Rs 300,000, the employer will issue Form 16 (TDS certificate).

2. Should I avail Form 16 and Salary Certificate both?

If you have received Form 16, you do not require a Salary certificate. You will receive Form 16 only when your employer deducts TDS on your Salary.

3. What is the significance of Form 16? 

Form 16 contains various information such as tax calculation, the amount eligible for tax deductions, TAN, PAN of the Deductor etc. It also provides details of Tax Deducted at Source (TDS) by your Employer. 

4. What is PART A in Form 16? 

Part A of Form 16 contains employee and employer details. It provides information such as TAN, PAN of the employer, details of the amount paid/credited and the Tax Deducted at Source by the employer.

5. What is PART B in Form 16? 

Part B of form 16 contains salary details, information about income from various sources that collectively form your gross total income, various tax benefits, total income, tax on it, etc. 

6. Is Form 16 the only document that I need for e-filing? Is it a complete document? 

No, Form 16 is not the only document that is needed for filing your income Tax Returns. It is a form of income certificate and it is referred for computing the total Salary.

For computing other income and deductions, refer to other related documents such as bank statements, interest certificates etc. Form 16 can serve as a complete document only if you are sure that you have reported all other income from various sources and investments to your Employer without hiding any other details. 

7. I have invested Rs 10,000 in Tax Saving FDRs. But, I forgot to declare it to my employer. Hence, my Form 16 is not showing it. What should I do?

You do not need to worry if you have not declared about your investment to your employer. You can claim the amount invested in tax-saving FDRs under section 80C by declaring the details in the relevant column in ITR while filing your Income Tax Return. 

8. I invested Rs 80,000 on LIC premium and paid Rs 30,000 as my child’s tuition fees. I declared it to my employer but I was given the tax credit of Rs 80,000 for LIC premium only. Am I not considered to get deduction Rs 30,000 for tuition fees? 

Yes, you can get the full deduction of Rs. 110000 for LIC premium and tuition fees paid under section 80 C. If your Employer has not given you the tax benefit of tuition fees, you can still claim both the deductions while filing your Income Tax Return. 

9. I worked for two employers and hence I have two Form 16 documents. Do I need to file a separate return for each Form 16? 

No, you require filing only one Income Tax Return irrespective of how many Form 16s you receive. The Income Tax Return Form provides an option for reporting the salary from multiple employers while filing the Income Tax Return. You can also claim the deductions for which you are entitled. 

10.  My employer has not provided Form 16, how will I file my return?

If your employer has not provided you Form 16, there is nothing to worry about. You can still file your return in the following ways: Collect your salary slips or pay slips to compute your total salary. View your Form 26AS or tax credit statement to match the TDS calculation. Gather all the requisite documents related to your investments and claim your deductions accordingly.

Please note that for Provident Fund, you can claim only the amount contributed by you but not by your employer.

Collect the rent receipts from your landlord to get the deduction for House Rent Allowance (HRA). If you have income from other sources such as interest from the fixed deposit, house property, etc. Do not forget to include the details in your Income Tax Return.

Mention tax amount and the amount of TDS as shown in Form 26AS in your ITR. Log on to Income Tax Website or E-Filing Private Websites to prepare your ITR with the above details and e-file your Income Tax Return.

11.  During the financial year 2015-2016, I paid Rs. 15000 per month as rent to the landlord. But, the landlord neither provided PAN nor any sort of declaration. As a result, my employer did not provide HRA benefit in Form 16. Can I still claim it? 

Yes, you can claim it, if you have enough evidence to prove that you have actually paid the rent. You will be required to present the evidence to the Income Tax Department claiming that the rent has been paid. You can present your bank statements if you have made payments by cheque.

If you have paid rent by cash, you can ask the landlord to provide the duly signed acknowledgment receipt as a proof of payment. Despite all evidence, it is completely dependent on the discretion of the Income Tax Department whether they get convinced by the evidence and accordingly they may provide tax benefit on HRA. 

12.  My Form 16 is not displaying complete TDS. How can I claim it? 

If your Form 16 is not displaying complete TDS, you must verify the Form 26AS. If TDS is reflected in Form 26AS, you must immediately inform your employer and request to issue the revised Form 16.

If TDS is not reflected in your Form 26AS, your details are not properly updated and the reasons could be incorrect PAN, incomplete form, mistakes while filing the TDS return by your employer, etc. In such cases, you must inform your employer and request to take necessary action. 

13.  What are the important factors to consider in Form 16?

When you receive Form 16, you must check the following: Name, PAN, Employer’s TAN, Cross check the Salary (mathematical) numbers from your pay slips.

14.  My Employer has miscalculated my HRA exemption as Rs. 145,239, whereas it is Rs. 185,239. Will I get a claim for the remaining amount?

When an employer by miscalculates the HRA exemption, the employee can still get the tax benefit of HRA while filing the Income Tax Return. Remember, all deductions which were omitted while generating Form 16 can be claimed while filing the Income Tax Return, provided that you are eligible as per the Income Tax Laws.

So, if you have enough evidence to prove the genuineness of the exempted HRA amount, you can claim Rs. 185,239 while filing your return instead of Rs. 145,239 as given in Form 16. 

15.  My Form 16 is showing incorrect PAN. What should I do? 

It may happen that your employer has mentioned an incorrect PAN in your Form 16. This is a very serious issue due to which you may not be able to claim your TDS amount and so necessary actions are required to be taken as soon as possible.

In such case, you need to inform your employer of the said error and ask him to correct it on his end. He will have to file a revised TDS return correcting your PAN so that the tax deducted from your income gets displayed against your PAN.

Moreover, after the revised return has been filed download your Form 26AS to check that the TDS has been correctly reflected in your tax credit statement.  

Source-https://mytaxcafe.com

Systematic Transfer Plan

1. What is a Systematic Transfer Plan (STP)?

Under STP, you invest a lump sum amount in one scheme and regularly transfer a pre-defined amount into another scheme, on a specified date. The mutual fund will reduce the number of units equal to the amount you have specified from the scheme you intend to transfer money. At the same time, the amount that is transferred will be utilized to buy the units of the scheme you intend to transfer money into, at the applicable net asset value (NAV). You can get into a weekly, monthly or a quarterly transfer plan, as per your needs.

2. How does an STP work for you?

STP is a useful tool to take exposure into equities in a staggered manner or to reduce exposure over a period of time. Say you have Rs.1 lakh to invest in equity over a period of time. You could put this amount in the liquid fund of a mutual fund. This gives an opportunity to earn higher than you would in your savings bank account. Once the money is there in the liquid fund, you can start an STP where every month a pre-determined amount will be invested into an equity fund. This helps in deploying funds at regular intervals in equities with minimum timing risk.

3. When is it effective?

An STP from debt to equity will work when markets are volatile and an investor does not want to take risk in a short span of time. If you invest through STP in equities and if markets fall or are volatile, then this situation will be better than the one-time investment option.

4. When will it not work?

In a scenario where equity markets are at the end of a bear market and markets can get into an up move anytime, in that case, one-time investment is a good choice and an STP may lose out. However, it is very difficult to predict this. Given that a retail investor does not have the time and tools to research the markets on his own, it makes sense for them to stagger their investment over a period of time and get better risk adjusted return.

Systematic Investment Plan (SIP)

For Investment purpose, we often wait to collect a large amount of money and invest it all at once. These investments are done to achieve our future goals like Buying a house, Child’s Education, Marriage or Retirement Planning.However recurring household expenses always erode the money which we would have otherwise kept for investments and the result- we end up compromising on our financial goals.

Systematic Investment Plan (SIP) is a financial planning tool that allows you to invest in mutual funds through small,

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periodic installments.

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SIPs help you set aside a fixed amount every month for investments thus contributing towards your financial goals.

Start Early + Invest Regularly = Create Wealth

	Save Now	Save Later
Saving Starts	Now	10 Years Later
Savings Monthly SIP	Rs. 5000/-	Rs. 8000/-
Saving Years	25	15
Total Amount Invested	15,00,000/-	14,40,000/-
Growth at  12% Rate of Interest	85,11,033	23,79,657

 

How SIP works in MF -

Systematic Investment Plans (SIPs) is an investment option that allows you to invest a fixed amount every month or every quarter through your mutual fund scheme. With several benefits over conventional savings and investment options.

Key Features:-

1. Discipline in Investments:- (As one can save on monthly basis)

Investing in an SIP helps you develop a discipline in investments, since you will be actively planning to set aside that much money at regular intervals..

2. Easy to Invest & Affordable:-  You have the convenience of direct debit of your SIP installments though Electronic Clearing Service (ECS) facility. Your SIP amount automatically gets debited from your bank account on the predetermined date.

3. Cost Averaging:-  (At different level one can Invest in stock market - some at high & some at low )

A more successful strategy is ‘Rupee Cost Averaging’ wherein you invest a fixed amount regularly. Thus you purchase more when the prices are low and purchase less when the prices are high. SIP Investments take advantage of this strategy & in the long term, the SIP investor gains as his investments are unaffected by market volatility.

4. Value Averaging:-  (Well Managed Portfolio  by Experienced Fund Manager)

The Advantage of investing small amounts regularly over a long period is that you will ride out the ups and downs of the equity market. Here’s how: since you invest every month (or quarter), regardless of the market, you will get a better overall price for your investments, and therefore, better returns. This is the law of averaging returns.

5. The power of compounding:- (Taking a smart decision now could help you achieve your future goals)

Setting aside a small amount every month can over time, add up to a quite a large sum, thanks to the power of compounding.

6.Flexibility & Liquidity:- (One Can Stop Anytime & Withdraw anytime after 1 Year of Investments done)

Note : Actual Updated  Mutual Fund  SIP mode Performance attached .   

I hope this will give conviction how Mutual Fund works in SIP mode, kindly don’t mix with Direct Equity Investment category. 

4 Money Tips That Will Save You Loads This Festive Season

It was a sunny Sunday morning and I called Rohan, my good childhood friend and also a financial planning client, for a game of tennis. During the game, Rohan was looking somewhat pensive. Having known him for all these years, I knew something was wrong.

He confided in me that his cash flow situation was not good. His expenses had shot the roof, in the last few months. With festive season round the corner, he was concerned about his promise, to buy some expensive items, to his family. He reached out to me, to bail him out of this situation, with my advice.

The good news is that Rohan is not alone. With the advent of a booming credit economy and online websites offering zillions of deals and discounts, it is becoming difficult for families to resist the temptation to splurge more than they can. This, of course, proves to be costly in the long run! Here are four tips on how to spend wisely and save smartly, during this festive season.

1. Set the right expectations within the family

Family is typically the centre of our life. We love, we care. But we also tend to sometimes go berserk while expressing our love, by indulging them in expensive gifts. Let's be more financially disciplined and understand that while we do love our family, purchasing expensive gifts is not the only way of expressing one's love. Ensuring proper fiscal prudence and things like taking the right insurance, making proper investments etc. play a much bigger role in deciding a family's well being.

Stop spending recklessly and set the right expectations within the family. Make it a practise, to sit together before the festive season and mutually discuss the financial situation. Then arrive at a consensus on the allocation towards festival bonus. A collective decision plays a big role in enhancing ties between family members. Also, often it is here that the compatibility between the spouses comes to test.

2. Set a budget and stick to it

The best way to take control of festival spending and saving is to decide on a budget, an upper limit. Ideally, a festive spending should not let the couple stop any systematic investment they've been making for their financial goals and the spending should be out of the bonus received from the employer. So, if a person receives for example, Rs. 1 lakh Diwali bonus from the employer, then rather than deciding how to allocate after it hits the bank account, the couple should pro-actively discuss and plan it well before. So, a good strategy can be to use Rs. 50,000 to pre-pay the EMI, Rs. 25,000 to beef up the emergency fund and the remaining Rs. 25,000 towards festival purchases. Now fixing the upper limit at Rs. 25,000 in this case automatically fixes the family's expectations and is a more systematic way of capital allocation.

3. Go for things you ‘need' rather than things you ‘want'

As Warren Buffet, the legendary value investor, has so wonderfully said: "If you spend on things you do not need today, you'll have to sell the things you need later". Remember this golden rule when you make your vital spending decisions. So, instead of buying a high-end car with a loan, if you purchase a mid-segment car with full cash down, then simple maths will tell you the savings in interest cost and even fund another small car! So, why waste money. The important question for a couple to ask themselves is, ‘Do we really need this?' Clarity on this front is half the battle won!

4. Do not succumb to clever marketing tactics of sellers

The universal problem of shoppers is that they often go shopping to buy with something in mind and then walk out of the mall having shopped everything, but what they had intended to.

This is due to lack of self-awareness. As Robert B. Cialdini shares so well in his book"Influence: The Psychology of Persuasion", marketers employ all kinds of tactics to get your ‘yes', even without your knowledge. From the discounts to the offers to the easy EMI schemes to even the overall ambience when you enter the mall, everything is carefully designed. They are just waiting for the bait!

This is where you have to set your financial goals and spending limits very carefully in your mind. Else, be ready for a long journey of loans and interests to pay.

Shop only for items which are within your budget, pay via cash/debit card (preferably, do not carry your credit card, at all). Say no to loans and offers, and browse around before finalizing your purchase. Don't fall into the trap of zero per cent interest schemes; ask for the fine print of a deal/offer and check the processing fees in case of loan transactions.

Also, do not forget to ‘ask' for a better deal. More often than not, you'll get it.

The festive season brings with it a lot of joy, celebration and good cheer. It is in these times that a person may lose his or her focus on financial planning. Do not make costly financial mistakes. Spend, but within limits, with the right awareness and after taking a holistic view of your finances.

As far as my interaction with Rohan was concerned, our tennis game ended up in a personal finance class. It left him feeling confident about his festive financial planning, without compromising the financial well-being of his family.

Here's the link of  my e article published  : http://www.idiva.com/news-work-life/4-money-tips-that-will-save-you-loads-this-festive-season/15111393