ESOPs Taxation in the hands of an Employee

What are ESOPs?

ESOP (Employee Stock Ownership Plan) is an Employee Benefit Plan provided by the company/employer. ESOP allows an employee to buy a stock of their company at a below-market price. It also offers ownership interest to employees. ESOPs can be issued in as Direct Stock, Profit-Sharing Plans or Bonus. ESOPs is the three-step process:

  1. The company/employer decides to issue shares,
  2. The employee decides to exercise/buy issued shares,
  3. The employee decides to sell shares.

Before granting ESOPs to employees, an employer needs to follow Rules and Regulations relating to ESOPs are as per the Companies Act 2013.

An employee needs to understand ESOP taxation before exercising the option. ESOPs are taxed twice in the hands of an employee:

  • At the time of exercising right i.e purchasing the shares,
  • At the time of selling the shares.

Hence it is important to understand the tax implications of ESOPs before filing ITR of that financial year.

Need help in ITR Filing with ESOPs?
Let an Expert help you
[Rated 4.8 stars by customers like you]
Need help in ITR Filing with ESOPs?
Let an Expert help you
[Rated 4.8 stars by customers like you]

Prerequisites of ESOPs

Following are the prerequisite of ESOP:

  • An employer has the right to decide who can avail ESOP,
  • An employee needs to go through the pre-defined vesting period ie., an employee has to work for the company until a part or the entire stock options could be exercised,
  • The company/employer grants ESOPs to its employees for a Specified Number of Shares of the company at a Pre-determined Price after the option period (a certain number of years).  

Employer: Contributions to the ESOP are tax-deductible as they are made to repay the loan amount. Both principal and interest are tax-deductible. But once ESOPs are executed, the employer/company needs a proper administration including the third-party administration, trustee, valuation, legal costs. Hence it will be the burden of ongoing cost for a company/employer.

Benefits of ESOPs

The purpose of ESOP is to give benefit to both the Employer/Company and Employee. Startup eco-systems widely use ESOPs.

Following are the benefits of ESOP to the Employer/Company:

  • For attracting and retaining high-quality employees,
  • Making employees stakeholders of the company,
  • The company can avoid cash compensation as a reward, thus saving on immediate cash outflow.

Following are the benefits of ESOP to an Employee:

  • The benefit of acquiring the shares of the company at the nominal rate, and sell them (after a defined tenure set by his employer) and make a profit,
  • Compensation of hard work in the form of ownership interest in the company.

Tax Implications of ESOPs

It is important to understand the tax implications of ESOPs in India before the employer considers implementing an ESOP scheme.

Employee: ESOPs are taxed at the following two times:

  1. At the time of Exercising ESOP: It is considered as a Prerequisite under Salary Income Head. Hence when an employee exercises his option, the difference between Fair Market Value (FMV) as on date of exercise and the exercise price is taxable as a prerequisite.
  2. At the time of Selling: It is considered as Capital Gain. An employee might sell his/her shares after buying them. In case he/she sells these shares at a price higher than FMV on the exercise date, he/she would be liable for capital gains tax.

ESOPs Taxation on Purchase of Shares

When an employee buys the shares of a company, it is treated as Perquisite. The shares are credited to a Demat Account of an employee once shares are purchased. Following are the tax implications when you buy the shares:

  • Perquisite is the difference between the Fair Market Value (FMV) and exercised price/buy price.
  • Perquisite is a part of taxable salary and taxed under the Salary Income Head.
  • It will be taxed in the year in which ESOP is exercised by an employee. An employer/company will deduct TDS on the same.
  • Form 16 issued by an employer/company will reflect the prerequisite amount and TDS on the same.

Example: Neha works in a startup in India. During FY 2019-20 her company announces ESOPs for all the current employees. Neha decides to exercise her option to buy the shares of the company. Under this scheme, Neha received 2000 shares at INR. 20 per share. The FMV of the shares is INR. 65 per share. Following are the tax implication on the above transaction:

Purchase Price: INR. 20

FMV: INR. 65

Perquisite: INR 45 (65-20)

Taxable Perquisite Amount: INR. 90,000 (2000X65)

Now the company will treat INR. 90,000 as a taxable salary of Neha and will deduct TDS on the same. While filing her ITR Neha needs to show INR. 90,000 as Perquisites under Salary Income Head.

In Budget 2020 FM announced to defer TDS or tax payment on shares allotted by the startups to their employees under ESOPs. This means an employee of startup who are exercising their ESOPs may have to pay tax at a later date. Employees will be paying tax at the time of exit from the company or selling the shares or for a period of 5 years whichever is earlier.
Tip
In Budget 2020 FM announced to defer TDS or tax payment on shares allotted by the startups to their employees under ESOPs. This means an employee of startup who are exercising their ESOPs may have to pay tax at a later date. Employees will be paying tax at the time of exit from the company or selling the shares or for a period of 5 years whichever is earlier.

ESOP Taxation on Sale of Shares

When an employee sells the shares, it is treated as Capital Gains. Following factors are considered for calculating Capital Gain Income:

  1. The Period of Holding: In case of ESOPs period of holding is from the exercise date up to the date of sale. Short Term or Long Term Capital Gain is determined by taking into account the period of holding.
  2. Taxable Amount: The difference between Sale Price and FMV on the exercise date is taxed as Capital Gains.

The tax treatment is different depending on whether the company is listed on the stock exchange or not.

Tax Treatment on sale of Listed Shares

  • Long Term Capital Gains(LTCG): Taxed at a special rate of 10%. (Shares held for more than 12 months).
  • Short Term Capital Gains(STCG): Taxed at a special rate of 15%.(Shares held for less than 12 months).

Tax Treatment on Sale of Unlisted Shares

  • Long Term Capital Gains(LTCG): Taxed at a special rate of 20% with Indexation (Shares held for more than 24 months).
  • Short Term Capital Gains(STCG): Taxed at applicable slab rate (Shares held for less than 24 months).

Example: Arya is a salaried individual. She works for a startup(listed Company) She received 2000 shares from her company under the ESOPs scheme in FY 2018-19. And she sales the shares on 20/01/2020. Following are the information to keep in mind:

Date of Purchasing Shares/Exercising the ESOPs: 25/02/2019

FMV as on 25/02/2019: INR. 50

Sales Price as on 20/01/2020: INR. 75

In the above case, the following will be the taxability:

Period Of Holding: 25/02/2019 to 20/01/2020 i.e, less than 12 months (Listed Company). Hence there will be Short Term Capital Gains.

Taxable Amount: INR. 50,000 [2000X25(75-50)]

Tax Rate: 15%. Since this is STCG from shares of Listed Company it is taxable at a special rate of 15%.

Tax Amount: INR. 7,500 (50000 X15/100)

FAQs

Under which head of Income-tax is ESOP taxable and which ITR is to be filed?

-When an employee buys the shares of a company, it is treated as Perquisite. And thus taxable under the head Salary. In this case, the taxpayer is required to file ITR-1.
-When an employee sells the shares, it is treated as Capital Gains and thus taxable under Capital Gain head. In this case, the taxpayer is required to file ITR-2.

How do I report employee stock options on tax return?

Since you’ll have to exercise your option through your employer, your employer will usually report the amount of your income as ordinary wages or salary and the income will be included when you file your tax return on Income Tax Portal.

What happens when you leave an ESOP?

If you quit or are laid off, the ESOP distributions are deferred for six years . Once those six years pass, you may receive the value of your ESOP shares in either one lump sum, or in basically equal payments made over five years. 

How can I download utility to convert Form 16 / 16A text file into PDF?

TRACES provides the text file to PDF converter utility on their webpage. Hence, to convert text files of documents and reports into PDF, you must download the TRACES Utility. TRACES utility can be used:

  • To convert Form 16 (Part A and Part B) text file into PDF
  • To convert Form 16A text file into PDF
  • To convert Form 27D text file into PDF
  • Convert Transaction based Report text file into PDF
  • Convert Justification Report text file into excel file
Upload Form 16
File ITR Online

India’s fastest growing Tax Filing Platform

[Rated 4.8 stars by customers like you]

Upload Form 16

File ITR Online

India’s fastest growing Tax Filing Platform

[Rated 4.8 stars by customers like you]

Steps to Download Text File to PDF Converter Utility from TRACES

  1. Log in to TRACES

    Log in to TRACES – Enter User Id, Password, TAN or PAN and captcha

  2. Navigate to Requested Downloads

    Go to Downloads > Requested Downloads

  3. Download TRACES Utility

    Click on the ‘Click here’ button to download the TRACES Utility

TRACES Utility Purpose System Requirements
PDF Convertor utility V 1.4 L Convert Form 16 Part A / Form16A into PDF JAVA 8 update 45, JRE 1.6 or above
Pop up blocker should be enabled
PDF Convertor utility V 1.1 L (Part B) Convert Form 16 Part B JAVA 8 update 45, JRE 1.6 or above
Pop up blocker should be enabled
Transaction based Report PDF Convertor V 1.1 Convert Transaction based Report into PDF JAVA 8 update 45, JRE 1.6 or above
Pop up blocker should be enabled
Form 27D PDF Convertor V 1.0 Convert Form 27D into PDF JAVA 8 update 45, JRE 1.6 or above
Pop up blocker should be enabled
TRACES Justification Report Utility V 2.2 Convert Justification Report from.txt format to .xls format MS Excel 2007-2010
Macro enabled
TRACES Offline Correction Generation Utility V 1.3 Steps to convert the Offline Correction file into an excel MS Excel 2003 or later
Winzip 17 or below

FAQs

How can I download Form 16 / Form 16A in PDF format?

The deductor can download Form 16 or Form 16A from his account on TRACES. However, this file is a text file. To convert it into PDF format, you need to download the ‘PDF Convertor Utility’ from TRACES.

Is Form 16 mandatory for all employees?

The provisions in the Income Tax Act make it compulsory for an employer to issue Form 16 to his employee if TDS has been deducted from his salary. Form 16 is the certificate issued under section 203 of the Income-tax Act for tax deducted at source (TDS) from income under the head ‘salary’.

What are the different uses of the TRACES utility?

1. To convert Form 16 (Part A and Part B) text file into PDF
2. To convert Form 16A text file into PDF
3. To convert Form 27D text file into PDF
4. Convert Transaction based Report text file into PDF
5. Convert Justification Report text file into excel file

How to download Form 16 (Part A and Part B) from TRACES?

Taxpayers can download Form 16 Part A & Part B from the TRACES portal by following the steps given below. It is a TDS Certificate issued by an employer with details of income from salary and TDS deducted on it. The employer can download Part A from his account on TRACES. FY 2018-19 onwards, the employer can also download Part B from TRACES. It is necessary that the status of the submitted return i.e. Form 24Q should be ‘Statement Processed with Default’ or ‘Statement Processed without Default’ to download the Form.

Note: A deductor can download Part-B through TRACES website if:

  • Deductor has filed Form 24Q Annexure-ll after 12th May 2019
  • Deductor has filed Form 24Q before 12th May 2019, he must file revision (in deductee details) in the new format specified by the income tax department
TDS Return (24Q) for Salary Payments (Quarterly)
CA Assisted TDS return filing of one quarter for startups, companies and partnership firms making salary payments
[Rated 4.8 stars by customers like you]
TDS Return (24Q) for Salary Payments (Quarterly)
CA Assisted TDS return filing of one quarter for startups, companies and partnership firms making salary payments
[Rated 4.8 stars by customers like you]

Steps to download Form 16 from TRACES

Time needed: 5 minutes.

  1. Login to TRACES

    Login to TRACES – Enter User Id, Password, TAN or PAN and captcha

  2. Navigate to downloads from the dashboard

    Go to Downloads > Form 16

  3. Select Financial Year and PAN

    Select the Financial Year and PAN for which you want to download the form. Click on ‘Go’. The deductor can request for Form 16 using the option ‘Search PAN’ or ‘Bulk PAN’

  4. Details of authorised person

    The details of the Authorised Person will appear on the screen. These details are populated from the profile information on TRACES. Further, these details would be printed on the TDS certificate. Click on Submit

  5. Select either of the following for KYC validation:

    1. Digital Signature Support KYC validation – Select if you want to use KYC validation using DSC
    2. Normal KYC Validation (without Digital Signature) – Select if you want to use KYC validation without using DSC

  6. Option 1: KYC Validation using DSC

    Select the Financial Year, Quarter, and Form Type for KYC validation using DSC. Click on ‘Validate DSC’

  7. Digital Signature KYC – option 1

    Enter the password to proceed.

  8. Digital Signature Certificate option

    Select the DSC and sign.

  9. Enter the token number

    Authentication Code will not appear on the screen in the case of the DSC Supported KYC.
    • Token Number must be of the regular statement of the FY, Quarter, and Form Type displayed on the screen.

  10. Enter the CIN/BIN and PAN details

    Authentication code is generated after KYC information details validation, which remains valid for the same calendar day
    for the same form type, financial year, and quarter.
    • CIN/BIN details must be entered for the challan/book entry mentioned in the statement corresponding to the FY, Quarter, and Form Type mentioned above.
    • Amount should be entered in two decimal places (e.g., 1234.56).
    • CD Record no. is mandatory only in case of challan is mentioned more than once in the statement.

  11. Request numbers

    Unique request numbers will be generated part wise – part A and part B.

  12. Requested downloads

    Track your request from “Downloads > Requested Downloads” and hence, can download the form 16 part A and part B.

  13. Download Form 16

    Form 16 parts will be available in “Requested Download”, Deductor can search for Form 16 (Part A or Part B) by
    using below mentioned options.

  14. Form 16 Part A

    Save Form 16 Part A file.

  15. Form 16 Part B

    Save Form 16 Part B file.

  16. Download TRACES utility

    Click on the HTTP Download button to download the file. A zip file is downloaded. Please do not extract the file. Go to Downloads > Requested Downloads. Click on the ‘Click here’ button to download the TRACES Utility.

  17. Important details

    Enter the captcha code and click on submit.

  18. Enter verification code

    1. Click on TRACES PDF Converter 1.4L to download utility for Part A of Form 16
    2. Click on TRACES PDF Converter 1.1L to download utility for Part B
    You will need to run the PDF Converter Utility program.

  19. Converter V1.4L – Form 16 Part A

    After extracting the zip file, access the folder and select the JAR file.

  20. TRACES PDF Generation Utility

    Enter the required details as shown in the image below.

  21. TRACES PDF generation Version 1.1L

    Select the JAR file for Form 16 Part B.

  22. Enter details in PDF generation utility

    Enter the required details as mentioned in the image given below.

Hence, after completing the above process you will receive the Form 16 Part A and Part B.

How do I get form 16 online?
An employee cannot directly download Form 16. He should request the employer to download it form TRACES portal
Read Answer
How do I get form 16 online?
An employee cannot directly download Form 16. He should request the employer to download it form TRACES portal
Read Answer

FAQs

I am a salaried individual. My TDS has been deducted u/s 192. How can I download my Form 16?

You cannot download Form 16 on your own. You should request your employer to provide you with the TDS certificate since he has deducted the TDS on salary and filed a TDS Return. He can download it at the end of the financial year from TRACES. However, you can download Form 26AS from your account on the income tax website. It contains details of the total salary and TDS deducted on it.

Is Form 16A different from Form 16 Part A?

Yes. Form 16A is different from Form 16 Part A.
Form 16A is the TDS Certificate issued by a deductor for non-salary payments like professional fees, brokerage, commission, interest, rent, contractual payment, etc. It contains details of the nature of payment and TDS deducted on it.

What are the different ‘Request Status’ to download Form 16 on TRACES?

The different types of “Request Status” to download Form 16 on TRACES are as follows:
1. Submitted – Successful submission, Request in processing
2. Available: Form 16 available for Downloading
3. Disabled: Duplicate request submitted for downloading
4. Failed: User is advised to contact CPC(TDS)
5. Not Available: (i) All PAN mentioned in the statement are invalid (ii) No Deductee records are present in the statement

What is Tax Deducted At Source (TDS)?

What is Tax Deducted at Source – TDS?

The concept of TDS or Tax Deducted at Source was introduced with an aim to collect tax from the very source of income. As per this concept, a person (deductor) who is liable to make payment of specified nature to any other person (deductee) shall deduct tax at source and remit the same into the account of the Central Government. The deductee from whose income tax has been deducted at source would be entitled to get credit of the amount so deducted on the basis of Form 26AS or TDS certificate issued by the deductor.

How is TDS deducted?

The Payer making a payment of specific nature withholds a percentage of the total amount payable. The payer is also known as “Deductor”. The payee whose TDS is deducted is known as “Deductee”. TDS needs to be deducted on the following type of payment:

TDS Calculator
TDS (Tax Deducted at Source) is a part of Income Tax. TDS should be dedcuted by a person for specific payments made.
Explore
TDS Calculator
TDS (Tax Deducted at Source) is a part of Income Tax. TDS should be dedcuted by a person for specific payments made.
Explore

Example

ABC Pvt Ltd needs to make payment of INR 50,000 to Jay for his professional services. Then in this case, ABC Pvt Ltd (Payer/ Deductor) needs to deduct TDS at 10% on INR 50,000 i.e, INR 5,000. And make payment of INR 45,000 (INR 50,000 – INR 5,000) to Jay (Payee/ Deductee).

Who needs to deduct TDS?

The Payer/ Deductor has to deduct TDS before making payment to a payee. The payer needs to obtain TAN for depositing and filing TDS Return. Following persons are required to deduct TDS:

  • Corporate/ Company
  • Firm
  • Government Offices
  • Individuals if covered under section 44AB (mandatory audit)

Tax Deducted at Source (TDS) on Salary

Every employer needs to deduct TDS on salary payments made to employees. The TDS on Salary comes under Section 192. And employer needs to file TDS Return in Form 24Q quarterly.

Making Salary Payments?
Need help with TDS Return Filing, Our Experts can help
[Rated 4.8 stars by customers like you]
Making Salary Payments?
Need help with TDS Return Filing, Our Experts can help
[Rated 4.8 stars by customers like you]

Here is the brief overview on how the total amount of TDS on Salary is decided.

Section TDS Rate TDS Applicability
Section 192 Applicable Income Tax Slab Rate
  • When the estimated income of the employee is taxable, TDS is deducted.
  • Employer is not allowed to deduct tax on non-taxable allowances (for eg. conveyance allowance, rental allowance, medical allowance etc..)
  • If the estimated total income of the employee is less than the minimum taxable income, no TDS is deducted. (Which is INR 2,50,000/- in case of Individual, HUF, AOP, BOD and AJP. Nil for others.)

As mentioned in the table, if you have any investments (which fall under Section 80) or life events that call for official allowances (Such as your child’s school fees or your wife’s medical treatment), then you can claim deductions. To claim the same you need to provide the relevant documents to your employer. It will also be mentioned in your Form 16. Form 16 issued by the employer is Proof of TDS Deduction and Salary Payments. It is used to file ITR by employees.

Let’s understand how the employer would calculate the TDS liability of the employee:

Particulars Amount (in INR)
1. Income from Salary 8,00,000
2. Tax Deductible Investments and Payments  
a. ELSS 25,000
b. PPF 15,000
c. Insurance premium 17,500
d. Home Loan principal repayment 90,000
e. Home Loan interest 1,30,000
3. Total taxable income (1-2) 5,22,500
4. Tax liability as per slab rates 30,385
5. Monthly TDS deducted by the employer (4 / 12 months) 2532

Tax Deducted at Source on Income other than Salary

There are various payments other than salary for which TDS is deducted such as professional fees, contract payments, commission or brokerage, property transaction etc.. TDS rates vary by nature of payment.

In the case of TDS payment other than salary, details of TDS can be found in Form 16A. It should be furnished by the deductor within fifteen days from the due date for furnishing the ‘statement of TDS’ under rule 31A. You will read about it in the next section.

Making Other than Salary Payments?
Need help with TDS Return Filing, Our Experts can help
[Rated 4.8 stars by customers like you]
Making Other than Salary Payments?
Need help with TDS Return Filing, Our Experts can help
[Rated 4.8 stars by customers like you]

Due Date to Deposit TDS

The following table displays the due date to deposit TDS:

Month End of Quarter TDS Payments Due Date – Government  The TDS Payments Due Date – Non- Government 
January 31st March 7th February 7th February
February 31st March 7th March 7th March
March 31st March 7th April 30th April
April 30th June 7th May 7th May
May 30th June 7th June 7th June
June 30th June 7th July 7th July
July 30th September 7th August 7th August
August 30th September 7th September  7th September 
September 30th September 7th October 7th October
October 31st December 7th November 7th November
November 31st December 7th December 7th December
December 31st December 7th January 7th January

Due Date to File TDS Return

Nature of Compliance Original Due Date New Due Dates
Form 24Q, 26Q, 27Q and 27EQ of Q4 of FY 2019-20 31st May, 2020 31st July, 2020
Form 24Q, 26Q, 27Q and 27EQ of Q1 and Q2 of FY 2020-21 As per rule 31A/31AA 31st March, 2021
Form 26QB, 26QC, and 26QD of February 2020 30th March, 2020 31st July, 2020
Form 26QB, 26QC, and 26QD of March 2020 30th April, 2020 31st July, 2020
Form 26QB, 26QC, and 26QD of April to November 2020 30 days from end of month in which tax is deducted 31st March, 2021

What is TDS Certificate?

TDS certificates are to be issued by a person deducting TDS to the assessee from whose income TDS was deducted while making payment. For instance, banks issue Form 16A to the depositor when TDS is deducted on interest from fixed deposits. Form 16 is issued by the employer to the employee.

What are the different types of TDS Returns?

The Income Tax Department has notified different TDS Returns/ Statements to be filed by the payer/ deductor within prescribed due dates. The quarterly returns/statements of the TDS should be submitted in the following forms:

Type of Payment Return Type
Salary Payments Form 24Q
Payments other than Salary to a Resident Form 26Q
Payments other than salary to NRI Form 27Q
Tax Collected at Source Form 27EQ
Payment on Sale of Property (by Individuals) Form 26QB
Payment of Rent on Property (by Individuals) Form 26QC
Payment to Contractor or Professional (by Individuals) Form 26QD

FAQs

1. Do I need to file my income tax return if my TDS is deducted by my employer?

Yes. It is very common for salaried individuals to have all their taxes deducted by their employer in form of TDS. Still you should file income tax return to claim any refund and/or carry forward any losses.

2. How to deposit TDS online?

– Go to TIN-NSDL, select Challan No./ ITNS 281 and enter TAN, Assessment Year and Personal Information.
– Select Type Of Payment and Nature Of Payment
– Select Bank Name and you will be redirected to the net banking site, make payment and Save Challan 281 for your records.

3. What is TDS Certificate?

TDS Certificate is a certificate issued by the person/deductor responsible for deducting tax at source. When TDS is deducted it is important to issue TDS Certificate. From TDS Certificate deductee knows how much TDS has been deducted by the deductor. Some of the examples of TDS Certificate are Form 16, Form 16A, Form 16B.

4. How to check my TDS Credit?

The deductor/employer is liable to give you a TDS Certificate i.e; Form 16, Form 16A confirming the amount of tax deducted. You can also check your TDS credit from your Form 26AS by login to your income tax e-filing account.

Why am I receiving SMS alerts from VK-ITDEFL?

ITD has been sending SMS to the taxpayers from VK-ITDEFL that mentions the amount of TDS against the PAN of the taxpayer. It lets you know the TDS credited in respect of your income from salary, interest etc., every quarter. The amount of TDS would stand accumulated in your Form 26AS for the respective financial year. This initiative was implemented by the Finance Ministry to increase transparency and reduce the cases of TDS mismatches at the time of income tax filing.

What is the difference between Form 16 and Form 16A?

Form 16 and Form 16A both are TDS Certificates. They are the proofs of tax deduction at source provided by the deductor. Both certificates are essential documents to file ITR. This article explains the difference between both the TDS certificates.

Upload Form 16
File ITR Online

India’s fastest growing Tax Filing Platform

[Rated 4.8 stars by customers like you]

Upload Form 16

File ITR Online

India’s fastest growing Tax Filing Platform

[Rated 4.8 stars by customers like you]

Difference Between Form 16 and Form 16A

Form 16Form 16A
It is a Certificate of TDS on Salary Income. It is a Certificate of TDS on Income other than Salary.
Form 16 is applicable to Salary Income earned by an individual.Form 16A is applicable to income such as interest, dividends, commission, professional charges, rent, etc.
Employer issues Form 16 to an employee. Deductor (Payer) issues Form 16A to a deductee (Payee). 
It is issued on an annual basis.It is issued on a quarterly basis.
When your income from salary exceeds Rs. 2,50,000 employer is required to deduct TDS and issue Form 16.  When your income (other than salary) exceeds a certain threshold, a payer is required to deduct TDS from payments and issue Form 16A.
Form 16 certificate has two parts- Part A and Part B. Part A contain information of TDS deducted. Whereas Part B includes details of salary paid, other incomes.Form 16A certificate has only one part. It contains details of Deductor and Deductee, Nature of Payment, Amount Paid, TDS, and Challan details.
You can easily file your Income Tax Return annually using Form 16.It can be used to file an income tax return. Form 16A will provide TDS deduction details from a different source of incomes. 

You will also find TDS details in Form 26AS Tax Credit statement. You can also figure out TDS on salary from your salary slips. If there are any discrepancies you can contact your Employer/ Deductor to make corrections. Deductors can download Form 16 and Form 16A from TRACES.

FAQs

What is the due date to receive Form 16?

Employer issues Form 16 after the end of the financial year. The due date is 15th June of the next financial year.

What is the due date to receive Form 16A?

Form 16A is issued by the deductor/payer after the end of the quarter in which TDS was deducted. The due date is 15 days from the date of filing of TDS return by the deductor.

Can I file ITR if I don’t have Form 16?

Yes, you can file ITR even without Form 16. All you need to do is calculate your taxable salary based on salary slips while filing ITR.

Is Stipend Taxable in India?

Income Tax Act has specified different nature of incomes and their taxability. But there is no specific mention of Stipend Income. This makes it difficult to determine whether the stipend is taxable in India or not. The stipend can be classified based on the Objective of a stipend. It can be classified in the following two categories:

Stipend as a Salary Income

When stipend is paid as remuneration for services provided while gaining experience, it is considered as salary. Here, the objective of a stipend is not to meet education expenses but to compensate for the duties performed similarly to a full-time employee.

Example – Stipend paid to doctors

In the case of doctors receiving stipend at hospitals while they pursue a higher degree, the scenario is similar to a salary. Here, they are performing duties like regular full-time doctors and at the same time gaining experience in their respective fields. That’s why the stipend received by the doctors will be taxable as salary income in India.

Example – Stipend paid to MBA Interns

Even MBA students who go through an internship before completion of their course duration, receive remuneration for the same. Although it may not be in the nature of formal salary, it is paid for the services rendered while gaining experience. So this remuneration received during an internship will also qualify as salary and thus taxable.

Need help in filing ITR with Stipend Income?
Let our Experts help you.
[Rated 4.8 stars by customers like you]
Need help in filing ITR with Stipend Income?
Let our Experts help you.
[Rated 4.8 stars by customers like you]

Stipend as a Scholarship

The scholarship is granted to meet the cost of education. The stipend will be considered a scholarship if the objective is to give the means of supporting education. Some of the examples of scholarship are research fellowships, awards for academic achievement. All these will be exempt from tax. Even if the grant or Scholarship amount is not fully utilized or it is utilized for some other purpose, the full amount will be exempt from tax. The scholarship is exempt u/s 10(16) of the IT Act.

Example – Stipend paid to CA students

Any student who is pursuing the course of CA and doing articleship, receives a stipend from his principal. This stipend amount is governed by an act and it is provided to CA students to meet the expenses of material and exam fees. Thus it falls under the category of a scholarship and is exempt from tax.

Stipend and TDS

Companies generally do not deduct TDS on stipends paid to their interns, but it does not mean that the income would be tax-free. The taxation would be based on the nature of the payment. If the company has already deducted tax and the individual has received a Form 16 from the payer, the tax will fall under income from salary.

With respect to saving tax on stipends, the only deductions that can be claimed are those that fall under section 80D.

Where to show Stipend Income while Filing ITR in India?

Taxable Stipend treated as Salary Income in India

  • If your employer has already deducted TDS and issued Form 16 then the stipend will be taxed under the head ‘Income from Salary’.
  • Even when TDS is not deducted by the employer, it will be taxable under the head ‘Income from Salary’.
  • If your stipend is taxable, you can save tax with Chapter VI-A deduction.
  • You can not claim any other expenses as a deduction from your stipend income.

Stipend treated as Scholarship

  • It is exempt from Income Tax.
  • You don’t need to file ITR on the Income Tax e-Filing portal. However, you can still file the ITR and show it under the head ‘Exempt Income’.
Income Tax Calculator
Calculate income tax liability for FY 2020-21. Compare tax liability as per New vs Old Tax Regime.
Explore
Income Tax Calculator
Calculate income tax liability for FY 2020-21. Compare tax liability as per New vs Old Tax Regime.
Explore

FAQs

Is it mandatory to file ITR for stipend income?

ITR filing is mandatory if the following conditions are fulfilled:
1. Stipend Income is treated as Salary Income,
2. Total stipend earned during the year is more than INR. 2,50,000.

Is TDS applicable on stipend income?

It depends on the category of stipend. If a stipend is treated as Salary Income then TDS will be applicable. But if a stipend is treated as a Scholarship then TDS will not be applicable. Since scholarship is exempt from taxes.

Where do I show stipend on tax return?

‘Salary’ received by an ’employee’ is taxable in the hands of the employee, thus stipend which is in form of salary is shown under the head ‘Income from Salary’. However, the Income Tax Act has further laid down that ‘scholarship granted to meet the cost of education’ is exempt from Income Tax under the section 10(16).

Tax consequences of switching Jobs during the year

People change jobs for higher salaries, better prospects, better exposure, etc. It’s common for people to move jobs during the financial year going after better pay or better work. But this results in various tax consequences of switching jobs mid-year. Communicating your last drawn salary and deductions claimed can solve half of your problems.

File Your Tax Return

On Time , Online on Quicko.com

Open Your Account Today

File Your Tax Return

On Time , Online on Quicko.com

Open Your Account Today

Tax Consequences of Switching Jobs

Higher tax bracket due to switching jobs

Always check if the new job is putting you in a higher tax bracket. Let’s say if you are currently earning a Taxable Salary Income of INR 7,50,000 in the 20% tax bracket. And after switching jobs, your Taxable Salary Income is INR 10,65,000 which will take you into the 30% tax bracket. This could mean a substantially higher tax outgo. Which you need to communicate with your employer and ask them to deduct your TDS accordingly.

Furnishing Form 12BB with the previous salary details

Once you join the new employer, he/she will ask you to submit Form 12BB. Which includes the details of salary paid by previous employer and TDS deduction. One needs to be careful while filling Form 12BB as it will be the basis on which your employer will deduct TDS in the remaining month of the financial year.

You can also submit Taxable Salary of Previous Employer from your Form 26AS.
Tip
You can also submit Taxable Salary of Previous Employer from your Form 26AS.

Take a copy of Form 16 from the previous employer

Don’t forget to take a copy of Form 16 from your previous employer. Even though Form 16 is available after the end of the financial year, you will receive an interim Form 16 from your previous employer including details of salary paid, TDS deducted on your salary. This will help you to fill up Form 12BB which you need to submit to your new employer.

Upload Form 16
File ITR Online

India’s fastest growing Tax Filing Platform

[Rated 4.8 stars by customers like you]

Upload Form 16

File ITR Online

India’s fastest growing Tax Filing Platform

[Rated 4.8 stars by customers like you]

Avoid claiming Deductions twice

Only claim tax-saving deductions and exemptions once. You can avoid this situation by submitting Form 12BB to your new employer. Just make sure that you claim only those deductions which you did not claim during earlier employment.

If you were unable to submit Form 12BB then you may have to check whether you are liable to pay any Advance Tax or Self-Assessment Tax. If your new employer has not taken into account your old employer’s TDS and deductions claimed, you might end up owing tax along with some interest penalty. In that case, you will end up with tax dues even after the deduction of TDS by both the employer.

ITR for Salaried Individuals
CA Assisted Income Tax Return filing for individuals having salary, one house property & income from other sources.
[Rated 4.8 stars by customers like you]
ITR for Salaried Individuals
CA Assisted Income Tax Return filing for individuals having salary, one house property & income from other sources.
[Rated 4.8 stars by customers like you]

Example

Dinesh switched jobs during FY 2018-19. The following are his salary and TDS details.

Particulars Income from
ABC ltd (in INR)
Income from
XYZ ltd (in INR)
Actual tax liability (in INR)
Income from Salary 5,00,000 (April-September) 7,00,000 (October-March) 12,00,000
Less:
Basic Exemption Limit
(2,50,000) (2,50,000) (2,50,000)
Taxable Income 2,50,000 4,50,000 6,50,000
Tax Liability 0 10,400 44,200
Monthly TDS deducted by the employer 0 1733 for six months  
Total TDS deposited by the employer 0 10,400 10,400
Tax liability at the year-end     44,200
TDS shortfall     33,800

 

Conclusion

  • Higher Tax Bracket: When total salary income from both the employer is considered, Dinesh’s income falls under a 20% tax bracket.
  • Double Deductions: Both the employers considered the basic exemption limit of INR. 2,50,000 before deducting TDS. Hence there is a shortfall of INR. 33,800 which Dinesh will have to pay with interest penalty before he files his ITR.

You can avoid a shortfall in taxes by communicating your previous employment details (salary, allowance, deductions claimed, etc) accurately to your new employer. You can do it by submitting Form 12BB / Interim Form 16 to your new employer. Which will enable your new employer to calculate TDS accurately.

Income Tax Calculator
Calculate income tax liability for FY 2020-21. Compare tax liability as per New vs Old Tax Regime.
Explore
Income Tax Calculator
Calculate income tax liability for FY 2020-21. Compare tax liability as per New vs Old Tax Regime.
Explore

FAQs

What to do if TDS is not properly deducted by an employer?

You need to ask your current employer to rectify the error and deduct the correct TDS on your total salary income. The other option is to pay the Advance Tax or Self Assessment Tax by yourself.

Can I file ITR-1 if I have switched jobs during the year?

Yes. You can file ITR-1. Further, make sure to consolidate the salary from both the employers before filing ITR.

Yes. You can file ITR-1. Make sure to consolidate the salary from both the employers before filing ITR.

Yes, you should declare your income from previous employment to the current employer. This will help the current employer to calculate tax on your total income for the year and deduct TDS accordingly. If you dont show the income the same will not get taxed, but you are violating the laws



Form 16 : TDS Certificate issued by Employer

Employers issue Form 16, TDS certificate to employees every year. Due date to issue Form 16 is 15th June.

Update Regarding Form 16 for FY 2020-21

The major change in Form 16 with respect to the new regime is in Part B of Form 16 where section A (the first line of Form 16) asks ‘Whether opting for taxation u/s 115 BAC?’ to which there are options of selecting ‘Yes’ or ‘No’.

What is Form 16?

It is a certificate of TDS on a salary that contains details of income earned and the taxes deducted. It is divided into two parts: Part-A and Part-B. The employer can download Form 16 Part A and Part B from their account on TRACES.

It is easier to file your Income Tax Return using Form 16. You can simply upload it on Quicko and ITR will be prepared automatically. Other important income tax documents include Form 26ASForm 12BBForm 10BA, and Form 15G/15H.

Form 16 Format – AY 2020-21

Form 16 – Part A

It contains details of TDS deducted by an employer. Part-A is generated by TRACES.

Part A includes the following details:

  • Employer Details: Name, Address, PAN, TAN
  • Employee Details: Name, PAN
  • Tax details: Tax deducted and deposited on the employee’s behalf

Sample Form 16 – Part A

Form 16 – Part B

Part-B is an annexure containing details of Income Chargeable under the head of ‘Salary’. Salary breakdown includes allowances, perquisites, bonus, income tax deductions, Taxable Income, Taxes, and TDS. From FY 2018-19 Part-B should be issued in a standardized format.

Sample Form 16 – Part B

Download Form 16 PDF from the Income Tax Department
ITR for Salaried Individuals
CA Assisted Income Tax Return filing for individuals having salary, one house property & income from other sources.
[Rated 4.8 stars by customers like you]
ITR for Salaried Individuals
CA Assisted Income Tax Return filing for individuals having salary, one house property & income from other sources.
[Rated 4.8 stars by customers like you]

Salary Breakdown

Gross Salary

Gross salary is the employee’s total remuneration. It includes basic salary, allowances, overtime, bonus and any other amounts before any deduction made.

  • Basic Salary
    • It is the predefined fixed pay that an employee receives each month. It also includes compensation like gratuity, pension, advance salary, commission, etc.
  • Perquisites
    • These are additional benefits provided by the employer like rent-free accommodation, concession in rent, etc. It also includes expenses incurred by the employer on behalf of the employee like medical, education, etc.
  • Profits
    • The amount received from a current employer or former employer in connection with their termination like a bonus, etc.
  • Salary from the other employer(s)
    • The current employer will include your salary from the previous employer in the Gross Salary. It the case usually when, the employee switched jobs or have multiple employers during the financial year.

Allowances u/s 10

Additional compensation received by employees over and above their salary is Allowances. Employers give allowances to their employees to help them meet certain particular requirements. Some of the common allowances include:

  • LTA
    • For employees when they are on leave and traveling alone or with family within India
  • HRA
    • For employees to cover their accommodation expenses. Salaried individuals who live in rental premises can claim tax benefits for the amount of rent they pay every year
  • Death-cum-retirement gratuity
    • For employees covered under the Gratuity Act, 1972. There is a predefined formula to calculate the amount that is tax-exempt
  • Commuted Value of Pension
    • For government employees and other employees who receive a commuted pension from the employer.
  • The cash equivalent of leave salary encashment is a retirement benefit for employees. There is a predefined formula to calculate the amount that is tax-exempt.

Deductions u/s 16

Tax deductions are deductible from taxable income (adjusted gross income). An employee is eligible to claim these deductions based on the investments made and expenses incurred during the year. These deductions help reduce the overall tax liability. Some of the most commonly used deductions u/s 16 are:

  • Standard Deduction
    • It is a flat deduction from the salary. No proof is required to claim the standard deduction. The standard deduction allowed for FY 2018-19 is INR 40,000 and FY 2019-20 is INR 50,000.
  • Entertainment Allowance
    • It is exempt only for government employees. Entertainment Allowance up to Rs. 5,000 is allowed.
  • Employment Tax
    • Also known as professional tax. An employer pays it on behalf of the employee to the state government. It ranges from INR 2,400 to INR 2,500.

Total Income from Salary

Total Taxable Salary is after deducting the allowances u/s 10 and claiming deductions u/s 16.

Other Income

Other Incomes under this Form include:

  • Income from Other Sources
    • The dividend, interest income from the savings account, fixed deposit, etc.
  • Income from House Property
    • Rental income from house property including flats, office spaces, farmhouses, etc. It also includes interest and principal repayment of loan taken on self-occupied house property.

Chapter VI-A Deductions

  • 80 C: ELSS, Provident Fund, Life Insurance Premium, etc.
  • 80CCC: Pension Funds
  • 80D: Medical Insurance Premium
  • 80E: Interest on Loan taken for Higher Education
  • 80G: Donation to Charitable Trusts, Institution
  • 80TTA or 80TTB: Interest on Savings and Deposits

Total Taxable Income

It includes the total income earned from salary, house property and other sources, after claiming all the exempt allowances and deductions during the financial year.

Net Tax Payable

Net Income: Tax deducted on income at the slab rate. Tax includes Income Tax, Surcharge, Health & Education Cess, Interest Penalties, etc.

Income Tax Calculator
Calculate income tax liability for FY 2020-21. Compare tax liability as per New vs Old Tax Regime.
Explore
Income Tax Calculator
Calculate income tax liability for FY 2020-21. Compare tax liability as per New vs Old Tax Regime.
Explore

Tax Payable: Tax calculated at Slab Rate on Net Income. Surcharge and
Health & Education Cess is levied on it. Rebate u/s 87A and Relief u/s 89 are given based on total income earned by an employee.

FAQs

Which ITR should I file if I have multiple Form 16?

You can file ITR-1. Any individual who earns only salary income can file ITR-1.

What if my employer has not provided me with a Form-16?

If your employer has not provided you with a Form 16, no need to worry. You can always download Form 26AS from the income tax e-Filing website to check TDS credit. And you can use salary slips to determine taxable salary income.

How to download Form-16 online?

A salaried individual cannot download his/her Form 16. It can only be downloaded by the deductor (employer) from his TRACES account.

Can I claim the deductions which are not shown in Form 16?

Yes, you can claim deductions that are not shown in the form while filing your ITR. But make sure to keep supporting documents with you for future reference.

Can I file ITR with multiple Form 16 with Quicko?

If someone has switched jobs during the year, he’ll have multiple Form-16. You need not worry. Just upload one, save it and add another. Quicko will add up all your salaries and deductions from multiple Form-16s.

Can an employer issue Form 16, if no TDS is deducted on salary?

Yes, an employer can still issue Form­ 16 to you. An employer will not issue Form 16 Part-A since no tax is deducted at source. However, your employer can issue Form 16 Part-B which is a salary statement.

AY 2021-22 ITR 1 SAHAJ Form – Salaried Individuals

What is ITR 1?

ITR 1 is the simplest one-page Income Tax Return Form for individuals having income from Salary / Pension, One House Property, and income from other sources. It is the basic ITR Form.

ITR 1 Form for AY 2021-22
Download the latest ITR 1 form for AY 2021-22
Download
ITR 1 Form for AY 2021-22
Download the latest ITR 1 form for AY 2021-22
Download

Up to FY 2018-19 (AY 2019-20), it was not mandatory to file Income Tax Return if the total income was less than the basic exemption limit. However, Budget 2019 inserted the seventh proviso to Section 139(1). As per this new provision, if a taxpayer has entered into high-value transactions, it is mandatory to file the ITR even if the total income does not exceed the basic exemption limit. The high-value transactions can be either of the following:

  1. If the taxpayer has deposited more than INR 1 Cr in a current account
  2. If the taxpayer has incurred foreign travel expense of more than INR 2 lacs
  3. Or, if the taxpayer has incurred electricity expense of more than INR 1 lac
Upload Form 16
File ITR Online

India’s fastest growing Tax Filing Platform

[Rated 4.8 stars by customers like you]

Upload Form 16

File ITR Online

India’s fastest growing Tax Filing Platform

[Rated 4.8 stars by customers like you]

Who can file ITR 1 Form?

Any individual whose total income does not exceed INR 50 lakh and includes:

  • Salary / Pension Income.
  • Income from one House Property (If there is a brought forward loss from previous years, ITR-1 cannot be filed).
  • Income from Other Sources (excluding winning from Lottery and Income from racehorses).

In case the income of a spouse or minor child is clubbed with the taxpayer’s income then they can file it only if their clubbed incomes include the above categories.

Earned Salary Income during the year?
Let our experts file ITR for you.
[Rated 4.8 stars by customers like you]
Earned Salary Income during the year?
Let our experts file ITR for you.
[Rated 4.8 stars by customers like you]

Who can not file ITR 1 Form?

It should not be used by Non-Resident of India (NRI) and the individuals whose total income includes:

  • Income from multiple House Property
  • Income from winnings from lottery or income from racehorses
  • Capital Gains Income (short term and long term Capital Gains from the sale of house, plot, shares, etc.)
  • Agricultural income exceeding INR 5000/-
  • Income from Business and Profession
  • Resident individual having
    • Any asset (including financial interest in any entity) located outside India or
    • Signing authority in any account located outside India
  • Individuals claiming relief of Foreign Tax paid or Double Taxation Relief under section 90/90A/91.
Ask an Expert (Income Tax)
Talk to an expert via call, whatsapp or messages. Ask questions about tax returns, applicability & compliance etc.
[Rated 4.8 stars by customers like you]
Ask an Expert (Income Tax)
Talk to an expert via call, whatsapp or messages. Ask questions about tax returns, applicability & compliance etc.
[Rated 4.8 stars by customers like you]

List of Documents Required to File ITR 1

Before you start working on your ITR, you should have the following documents handy:

Essential documents

Additional Documents

  • Salary Income
    • Form-16 or Salary slips received from your employer and
    • Pension statement/passbook.
  • House/Property Income
    • Address of the property,
    • Co­owner details in case the property is co­owned,
    • In case of house/property loan Interest certificates/repayment certificate from a bank,
    • In case of let out property ­Rent agreement
  • Other sources
    • Savings/current account statements/Passbook
    • Interest certificates for deposits/bonds/NSC
    • PPF account statement/Passbook
    • Dividend warrants/counterfoils
    • Rent agreement in case of let out machinery
    • Details about receipts of any other incomes

Income Tax Return Form – ITR 1

Check which ITR Form to file?
Income Tax Return Forms to file depends on your Income Source, Residential Status, and other financial situation. Know which ITR Form you should file.
Explore
Check which ITR Form to file?
Income Tax Return Forms to file depends on your Income Source, Residential Status, and other financial situation. Know which ITR Form you should file.
Explore

Major Changes in ITR 1 for AY 2021-22

  • Taxpayers are given the option to choose between the old tax regime and the new tax regime
  • Dividend Income has to be added with a quarterly breakdown for accurate calculation of Interest under Section 234C

Major Changes in ITR 1 for AY 2020-21

  • The individual taxpayers who meet the following criteria:
    • Make cash deposits above INR 1 Crore with a bank,
    • Incur expenses above INR 2 Lakh on foreign travel or,
    • Spend above INR 1 Lakh on electricity should also file ITR 1
  • Condition of the individual having income from salaries, one house property, other income, and having total income up to INR 50 Lakh continues
  • Resident individuals owning a single property in joint ownership can also file ITR 1 where the total income is up to INR 50 Lakh
  • Taxpayers should separately disclose the amount of the investment or deposits or payments towards tax saving made from 1 April 2020 until 30th June 2020
Income Tax Calendar
Don't miss another Income Tax due date. Check out this amazing tax calendar for 2020 by Quicko.
Explore
Income Tax Calendar
Don't miss another Income Tax due date. Check out this amazing tax calendar for 2020 by Quicko.
Explore

Major Changes in ITR 1 for AY 2019-20

  1. The Income Tax Return form for FY 2018-19 is not applicable to an individual who is either a director of a company or has invested in unlisted equity shares
  2. Under Part A, there is an introduction of ‘Pensioners’ checkbox under the ‘Nature of employment’ section.
  3. The Return filed under section has been segregated between normal filing and filed in response to notices.
  4. Segregation of Deductions under salary will into standard deduction, entertainment allowance, and professional tax.
  5. The taxpayers will have to provide income-wise detailed information under the ‘Income from other sources’.
  6. Introduction of a separate column under ‘Income from other sources’ for deduction u/s 57(iia) – in case of family pension income.
  7. Deemed to be let out property’ option now available under ‘Income from house property
  8. Inclusion of Section 80TTB column for senior citizens.

FAQs

Can Non-Resident of India (NRI) file ITR 1?

No. NRI can file any other ITR form depending upon the source of income earned by them in India. ITR 1 can only be filed by an Ordinary Resident of India.

Do I need to submit supporting documents along with ITR 1?

It is an annexure less form. Hence no need to send any supporting documents to the IT Department.

Can I file ITR 1 if I have multiple Form 16?

Yes. Any resident individual who has earned income from salary during the financial year can file ITR 1. Change in employment does not affect the ITR form type.

Can I file ITR 1 without Form 16?

Yes. A taxpayer can file ITR 1 without Form 16. However, he needs to calculate his taxable salary income for a financial year while filing ITR.

Is it mandatory to provide bank account details in Income Tax Return?

Yes. It is mandatory to provide active bank account details. You are also required to select one account as your primary account. Since your refund will be directly issued to your Bank Account vis ECS.

Can I file a return after the Due Date?

Yes. You can file a ‘Belated Return’ after the due date. You can file a belated return before the end of Assessment Year or before the completion of the assessment whichever is earlier. Late filing fees as per section 234F will also be levied.

Can I file exempt income in ITR-1?

Yes, you can file exempt income in ITR 1. However, if agriculture income exceeds INR 5000 then you will have to file ITR 2.

Do we have to report exempt LTCG in ITR 1?

Yes, you need to report exempt LTCG in ITR 1 provided it is exempt u/s 10(38). In case you have any taxable LTCG, you can use the other income tax return forms that are applicable. Additionally, it is necessary to e file tax returns if LTCG exceeds INR 2.5L even if your income is below taxable limit.

Is it necessary to add dividend income from mutual funds?

Yes. Dividend income from mutual funds is exempt u/s 10(35). It is shown in the Part D under the head Exempt Income (others).

I have no due refund. Do I still have to enter my account details in the return?

Yes, it is mandatory to fill in your bank account details, whether you have refund due or not. This is because it has been noticed that many taxpayers end up paying more than their required tax liability. In such cases, it is important for the Income Tax Department to send refunds within a certain amount of time.

How many returns can I file using the same mobile number and e-Mail address?

You can only file 10 returns using the same e-Mail ID and mobile number.