In this article, Shikhar Shrivastava discusses Employer’s responsibilities for Tax Filing of Employees.
Tax filing is the act of providing the detailed account of one’s income received in a financial year with the Income Tax Department. Non performance on the part of income receiver will lead to penal payment if the total income received is above the maximum waived tax limit. The employer is also required to deposit the tax so deducted in Government account within the prescribed time and format as per Section 200 of the IT Act. The tax has to be deposited to the credit of the Central Government in any of the branches of RBI, SBI or any authorized bank either in cheque or cash or draft drawn on local banks.
Why Employer Deducts Income Tax From Employee’s Salary
Income Tax Act 1961 casts a duty on every individual to pay tax when his total taxable income exceeding the non taxable limit and that’s why the employer deducts TDS (Tax Deduction at Source) from salary of employee every month and remits the same to the Income Tax Department within the due dates.
Sub-Section 2 of Section 192 provides that where a person has more than one employer, he may furnish the particulars of salary payments and TDS to the employer of his choice.[1]
How TDS Is Calculated
TDS is calculated by the employer considering the declared investments and expenses that are either Tax Exempted (or) eligible for tax deductions under Income Tax Act. Employee need to submit both IT investment declaration and Investment proofs (documents) to his employer. If he do not submit the required investment proofs at the year end, the employer will then be forced to deduct complete tax without considering your provisional investments (IT Declaration).
While calculating TDS liability, the total salary of an individual for the year is estimated; relevant deductions like interest on home loans, tax-savings under section 80-C and 80-D are deducted, and taxes due on net income are calculated according to the relevant slab rates.[2]
The present slab rates, income up to Rs 2,50,000 is exempt from tax; Rs 2,50,000-5,00,000 is taxed at 10 per cent income, Rs 500,000 to Rs 10,00,000 is taxed at 20 per cent, and any income above Rs 10,00,000 is taxed at 30per cent.
Informing New Employer About the Previous Salary
When an Employee joins a new Employer in the middle of a financial year then it is his duty to inform the new Employer about the Salary he has received along with the Form 16 provided to him by his previous Employer. The Employee may ignore or forget to do this but his act would amount to concealment of the information and he may end up paying penal amount of tax which may go up to 300% of the tax amount not deposited.
Why Income Declaration To New Employer Is Required
When an individual changes jobs, the new employer too calculates salary income for the financial year and if the individual does not declare to the new employer salary income from the previous one, the new employer would calculate TDS liability only over the salary which employee is receiving in the present employment.
So, when the old salary has not been declared to the new employer, the individual is being given the benefit of tax savings under section 80-C and 80-D twice by virtue of both the employers providing such deductions. Further, the individual enjoys the income tax slab benefit in both cases as the old and new salary are taxed separately.
The problem will arise while filing annual tax returns which will turn out to be a huge liability for the individuals. Such unforeseen events could also disrupt financial planning of individuals to settle this liability.
Therefore, the employee must see to it that he has declared his past employment income to the present employer and the same has actually been taken into account for the TDS calculations by the new employer or he would have to take help of an expert to self-manage the liability and pay it by way of advance tax installments.[3]
Employer’s Duty To Issue Form 16
Form 16 is a certificate issued by the employer to its employees for each financial year, under section 203 of the Income-tax Act, 1961, by 31 May of the assessment year (AY). If an employer delays or does not issue the form on time, he can be penalized. If the forms are not issued by then, under section 272A(2)(g) of the I-T Act, the employer is liable to pay a penalty of Rs.100 per day of default till it issues the form. If there was no TDS on the income, then the employer can decline to issue the form of that employee. Employees can approach the accessing officer (AO), under whose jurisdiction he has to file his ITR, and give a written complaint against the defaulting employer. Based on the complaint, the AO may take appropriate action or initiate penalty proceedings against the employer.
Importance Of Form 16
It provides information on tax deducted at source (TDS) from income chargeable under the head “salaries”. It has two sections—part A and part B.
Part A primarily has TAN & PAN details of employer & employee and details of tax deducted & deposited which is certified by the employer, TDS Certificate Number. Part B has other remaining details such as- details of salary paid, amounts deductible under chapter VIA, relief under section 89. Part B is prepared by the employer manually and issued along with Part A. If the person is employed under more than one employer during the year, each of the employers shall issue Part A of Form 16 for the person such a person was employed with each of the employers.[4]
Total deductions are aggregated under “Chapter IV-A” and reduced from gross income to arrive at the taxable income and tax liability is calculated on this amount. Part B gives details of tax payable by the employee or refundable to him.
Employee’s Duty When Employer Defaults To Conduct TDS
It may appear that TDS is the obligation of the employer only but if an employee is aware about a TDS default, then the employee is under an obligation to pay tax through the advance tax route or self-assessment tax as ultimately, taxes are to be deposited on his income.[5]
TDS certificate
TDS certificate in Form 16 is only required to be issued to the employee when TDS has been deducted. In case no TDS has been deducted by the employer he may not issue a Form 16.
An employer is compulsorily required to furnish a TDS certificate, in the format of Form 16, specifying that tax has been paid to the Central Government, with the amount so paid, the rate at which the tax has been paid and other prescribed particulars. Form 26AS, will have details of TDS deducted by the employer, and if the details don’t show up then it means the employer deducted TDS but didn’t deposit with the government and so an employee may have to pay tax to the government himself and later on claim from his employer.
Pay additional tax
If the amount of tax paid by the employee is less than what is mentioned in form 26 AS then the employee must pay the relevant amount of additional tax to the appropriate authority.
Evidence Of Proof Of Investments By Employee[6]
The Finance Act, 2015 had introduced section 192(2D) of the Income-tax Act, 1961 (the Act) wherein the person responsible for making payment of salary (employer) was obliged to collect the necessary evidence or proof in the prescribed form and manner to allow any claim for any deduction and/or tax saving investments.
The Central Board of Direct Taxes (CBDT) has come out with the relevant rules and also prescribed the form i.e. Form 12BB, in which salaried employees would now be required to furnish evidence of claims and tax saving investments to the employer. These rules come into effect from 1 June, 2016.
Employers should ensure that they obtain the declaration from employees in the prescribed Form 12BB in order to be compliant. Form 12B is required to be furnished as per Rule 26A by a new employee joining any organisation in the middle of the year detailing income earned from the previous employer.[7]
References
[1] http://www.deccanherald.com/content/553241/how-use-your-form-16.html
[2] http://www.business-standard.com/article/pf/changing-jobs-declare-past-income-to-new-employer-113070600609_1.html
[3] http://www.livemint.com/Money/5v0jwSCNNPZMF7pBo4oAqM/An-employer-can-be-penalized-for-not-issuing-Form-16-by-due.html
[4] https://blog.cleartax.in/when-employer-fails-to-issue-form-16/
[5] http://taxguru.in/income-tax/tds-on-salary-employees-responsibility-if-employer-defaults.html#sthash.Q7Pp6gKn.dpuf
[6] Tax Insights from India Tax & Regulatory Services, “CBDT notifies new form for reporting employee claims and tax saving investments, amends withholding tax rules and forms”, May 04, 2016
[7] http://www.charteredclub.com/form-12b/
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TDS is economically beneficial to a nation but still an individual can over come those issue by claiming life insurance policies,charity