Is your annual Form-16 compliance activity at Risk ?

Written by
Risk Management for Form-16
Akash VM

(If you are an expert on this subject, just skip directly to section “The Risk”)

As per Section 203 of the Income Tax Act 1961 read with Rule 31 of the Income Tax Rules, it is mandatory for all tax deductors to issue a certificate of tax deduction at source (TDS certificate) to such persons for whom tax is being deducted, in this case, an organization’s employees.

This certificate, called as “Form-16”, is to be issued on or before May 30th of 2015 for the financial period 2014-2015.

Preamble :

It is an important date & a race for every employer to comply with this requirement. The Form-16 compliance activity consists of majorly

  • Download of Part-A from TRACES
  • Generation of Part-B from your payroll software
  • Generation of Annexure to Form-16, Form 12BA (optional)
  • Signing the Form-16 – manually or with digital signature
  • Issuance of Form-16 to employees – via email (or) upload on your ESS (or) via hard copies

Apart from this, there are many checks & balances, employers have to ensure the data being provided to the employee is accurate & as per law.

The Risk :

In Feb 2013, The Income tax department mandated for “Part-A” of the Form-16 to be downloaded from TRACES. It was a welcome move to promote transparency & ensure better compliance.

Now, here is the catch :

Since the beginning of April 2015, if an employer has any “short payment” demands (as defined u/s 201 of the Income Tax Act, 1961) pending for any year – right from FY 2007-08 to FY 2014-15 ; Part-A CANNOT BE DOWNLOADED for the current FY 2014-2015, which is due to be complied by end of May 2015.

Is it shocking ? Unfortunately, Yes !

Another Catch :

Part-A cannot be downloaded even if “Short Payment” demands exists for vendor related TDS. TRACES system is designed not to differentiate between TDS of Payroll & TDS of Vendors, instead it sees on the basis of a single TAN.

The Result of this Risk :

  • Non-compliance of statutory dates for form-16 issuance can attract a penalty of Rs.100 / day / employee
  • Employee will be unaware of the tax credit & computation of the taxable income, hence they may also not be able to file their tax returns.
  • Genuine “short payment” demands attract an interest of 1.5% per month & interest on interest as well.
  • Dissatisfaction among employees & low morale
  • Most importantly, the undesired title of “Non-Compliant” organization

 Action Points to eliminate the risk ?

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Article Categories:
Digital Form-16 · Payroll · Tax Compliances