Payroll – Accounting and Preparation of Form-16
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Payroll – Accounting
Payroll accounting is essentially the calculation, management, recording, and analysis of employees’ compensation. In addition, payroll accounting also includes reconciling for benefits, and withholding taxes and deductions related to compensation. The calculation of payroll is highly influenced by each country’s legal requirements.
What is Form 16?
Form 16 contains the information needed to prepare and file your income tax return. It shows the breakup of salary income and the TDS amount deducted by the employer. It has two components – Part A and Part B (discussed in detail below).
Employers must issue it every year on or before 15th June of the following year, immediately after the financial year in which the tax is deducted. If you lose your Form 16, you can request a duplicate from your employer.
Employers must issue it every year on or before 15th June of the following year, immediately after the financial year in which the tax is deducted. If you lose your Form 16, you can request a duplicate from your employer.
Types of Form 16
Form 16-A
Like Form 16, Form 16-A is also a TDS certificate, but it is a TDS certificate for TDS deducted on income other than salary. This certificate includes details such as TDS deducted by your bank on income earned from interest rates on fixed deposits, TDS earned on rent income, TDS on insurance commission and any other income which is liable for such deduction. Form 16-A provides comprehensive details on TDS deducted and deposited on such incomes. Similar to Form 16, Form 16-A also contains the name, address of deductor and deductee, PAN details, TAN details of the deductor, as well as Challan receipts of TDS deposited on these incomes.
Form 16-B
Like Form 16-A and Form 16, Form 16-B is another TDS certificate, this one is concerned with the TDS deducted on sales of property and reflects TDS amount deducted on the property that is deposited by the buyer with the Income Tax Department. The buyer has to deduct a 1% TDS on the immovable property purchased from the seller and submit it to the income tax department and then later generate and provide Form 16-B to the seller. Form 16-B is proof that TDS on sales of the property has been deposited with the Government.
Like Form 16, Form 16-A is also a TDS certificate, but it is a TDS certificate for TDS deducted on income other than salary. This certificate includes details such as TDS deducted by your bank on income earned from interest rates on fixed deposits, TDS earned on rent income, TDS on insurance commission and any other income which is liable for such deduction. Form 16-A provides comprehensive details on TDS deducted and deposited on such incomes. Similar to Form 16, Form 16-A also contains the name, address of deductor and deductee, PAN details, TAN details of the deductor, as well as Challan receipts of TDS deposited on these incomes.
Form 16-B
Like Form 16-A and Form 16, Form 16-B is another TDS certificate, this one is concerned with the TDS deducted on sales of property and reflects TDS amount deducted on the property that is deposited by the buyer with the Income Tax Department. The buyer has to deduct a 1% TDS on the immovable property purchased from the seller and submit it to the income tax department and then later generate and provide Form 16-B to the seller. Form 16-B is proof that TDS on sales of the property has been deposited with the Government.
What is the eligibility criteria for Form 16?
According to the regulations issued by the Finance Ministry of the Indian Government, every salaried individual whose income falls under the taxable bracket is eligible for Form 16.
If an employee’s income does not fall within the tax brackets set, they will not need to have Tax Deducted at Source (TDS). Hence, in these cases, the company is not obligated to provide Form 16 to the employee.
However, these days, as a good work practice, many organisations issue this certificate to the employee as it contains a consolidated picture of the individual’s earnings and has other additional uses.
According to the regulations issued by the Finance Ministry of the Indian Government, every salaried individual whose income falls under the taxable bracket is eligible for Form 16.
If an employee’s income does not fall within the tax brackets set, they will not need to have Tax Deducted at Source (TDS). Hence, in these cases, the company is not obligated to provide Form 16 to the employee.
However, these days, as a good work practice, many organisations issue this certificate to the employee as it contains a consolidated picture of the individual’s earnings and has other additional uses.
Details required from Form 16 while filing your return
With reference to the image below, here is where you can locate certain information for filing your income tax return for FY 2020-21 (AY 2021-22).
Allowances exempt under Section 10
Break up of deductions under Section 16
Taxable salary
Income (or admissible loss) from house property reported by an employee and offered for TDS
Income under the head ‘Other Sources’ offered for TDS
Break up of Section 80C deductions
The aggregate of Section 80C deductions (gross and deductible amount)
Tax payable or refund due
With reference to the image below, here is where you can locate certain information for filing your income tax return for FY 2020-21 (AY 2021-22).
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