Tax filing 2025-26: Form 16 gets an upgrade -- What salaried taxpayers need to know

Salaried individuals who file income tax returns annually should take note of key changes introduced by the Income Tax Department in the format of Form 16—the document that outlines salary, tax deductions, and exemptions. The new structure is aimed at improving transparency and simplifying the return-filing process.

What is Form 16?

Form 16 is issued by employers as proof that tax deducted at source (TDS) on salary has been deposited with the government. It provides a comprehensive summary of an employee’s income, the TDS deducted, and the various deductions and exemptions claimed under the Income Tax Act.

What’s changed in Form 16?

The revised Form 16 is now more detailed than before. While earlier versions included only the basic information, the updated format breaks down salary components and deductions more clearly. Taxpayers will now be able to easily identify which salary components are tax-exempt, how much has been deducted under each section, and which perquisites or benefits are taxable. This level of clarity is expected to make it easier to file accurate returns and avoid errors that may attract scrutiny.

Breakdown of Form 16: Part A and Part B

Part A includes:

Employer’s PAN and TAN details

Total TDS deducted

This section is generated from the TRACES portal

Part B includes:

A complete breakdown of salary components

Details of exemptions and deductions under various sections (like 80C for investments, 80D for health insurance, 80E for education loans, and 80G for donations)

Why do these changes matter?

The updated format is designed to make the tax filing experience smoother for salaried taxpayers. With more transparent reporting, employees are less likely to make mistakes on their ITRs. It also reduces the chances of receiving a notice from the tax department due to mismatched or incomplete information. In short, the new Form 16 is a step toward better compliance and easier tax filing.

The implementation date for these changes is 20 February 2025. Effective immediately, these new rules will impact tax returns for the financial year 2024-25 (Assessment Year 2025-26).

Additionally, Form 24Q has been updated with the addition of a new column - 388A. This update aims to streamline the reporting of TDS and TCS for companies, ensuring accurate tax details for employees.

One notable change in Form 16 is the inclusion of any government deposits in the "Agniveer Corpus Fund" as part of an Agniveer's salary under the Agneepath scheme. However, tax exemption on this amount is available under section 80CCH.

It is important to note that certain facilities will now be subject to taxation.

If you receive rent-free accommodation from the company, it will now be classified as a facility (Perquisite) and may be subject to taxation.