At the end of every financial year, citizens and residents of any country are tasked to file their tax returns. Form 16 for education loan is a part of the taxation process. The taxable population must pay what they owe the government to contribute to the GDP. However, there are certain circumstances where you can get tax exemptions or deductions based on various financial decisions. All former students can enjoy a percentage of tax deduction when paying off their education loan. Form 16 is one of the many forms that the government accredits to registered private employees through employers. In the blog, read everything you need to know about Form 16 and its relation to education loans.
Form 16 For Education Loan
Form 16 is a document authorized by section 203 of the Income Tax Act that holds significant importance for employees receiving salaries in India. Employers furnish this certificate to their staff members, confirming the income received and the deducted tax amounts. This document doesn’t apply to those who are self-employed or earn income from non-salary avenues. Its main functions include validating the tax deductions made at the source and serving as a requisite for filing income tax returns in India.
- It plays a pivotal role in the electronic filing of tax returns and proves invaluable for those seeking loans by showcasing their income and tax payment records. Furthermore, financial entities utilize it to gauge an individual’s creditworthiness and their ability to repay loans.
- In education loans, Form 16 would apply to the parents or the co-signee of the student applying for the loans who are employed in a registered company. Form 16 holds significant importance for employed individuals in India as it validates their income and showcases tax deductions.
- When seeking an educational loan, this document is vital as it demonstrates the capability to repay the loan, giving lenders confidence in the financial stability of the applicant’s family. Financial institutions utilize Form 16 to evaluate an individual’s reliability in repaying loans, enhancing the trustworthiness of the loan request. Hence, Form 16 is a pivotal component in the educational loan application journey for Indian students.
What Is Form 16?
An economy has two major income groups: the taxable and untaxable population. If you’re above the tax-exemption limit, you must pay what you owe the government. Employers should make all the tax deductions before paying employees their net income. All employers issue their employees with Form 16, a certificate that gives a detailed salary breakdown and TDS deductions made. Under section 203 of the Income Tax, this is mandatory; employers must make TDS deductions and deposits with the Income Tax Department (IT) monthly.
| Form 16 Eligibility Every salaried person with tax deductions made to their income can get Form 16, regardless of whether you’re under or above the tax-exemption limit. |
Why Is Form 16 Required?
Form 16 simplifies the procedure for filing income tax returns. It proves that your employer submitted the funds to the ideal authorities after TDS deductions. It also details the computing of your terms per investment declarations made at the start of the financial year. This involves any allowances awarded or additional details that might impact the amount of tax paid, e.g., loans, medical bills, house rent, etc. Form 16 is crucial for the secured education loan application process as it shows your ability to repay.
When Is Form 16 Issued?
Employers are supposed to issue Form 16 on or before 31st May of the assessment year to give you enough time to file your income tax returns before the deadline. The assessment year is the year after the financial year in which your income is assessed and taxed. On the other hand, the financial year runs from 1st April to 31st March, when your taxable income is earned.
What Is Form 16A and Form 16B?
Form 16 has two major components (Part A and Part B) that reflect the majority of your details divided into parts. These are crucial parts when filing income tax returns.
Part A
This section contains basic details of employee and employer, TDS deductions, quarterly deposit details of employer’s PAN and TAN, and additional information. The form is accessible and downloadable from the TRACES portal. The employer should authenticate the contents of Part A of Form 16 before issuing the certificate. In cases where you’ve worked several jobs within the financial year, each employer should give a different Part A of Form 16. The components include:
- Name of employee and employer
- Address of employee and employer
- PAN of employee and employer
- TAN of employer
- Summary of deducted tax and quarterly deposits certified by the employer
Part B
Part B serves as an annexure of Part A. The employer prepares it and contains the breakdown of the employee’s salary and deductions per Chapter VI-A under the Income Tax Act. Some of the details included are:
- Detailed salary breakdown
- Detailed exempted allowance breakdown under Section 10
- Deductions permitted under the Income Tax Act
Difference Between Form 16, 16A And 16B
While all these forms are certificates of TDS, they mainly differ in the reason for issuing and to whom the certificate has been issued.
| Form 16 | Form 16A | Form 16B |
| Issued for TDS on salary | Issued for TDS on any income outside your salary, e.g., interest or investment, rent, etc. | Issued for TDS on income from selling immovable property |
| Issued by employer | Issued by financial institutions, tenants if you have rentals and other entities | Issued by the property buyer to the seller |
*NB: Information on TDS submissions to the Central Government Account is available in Form 26AS, downloadable from the TRACES website.
Benefits Of Form 16
Form 16 is proof of tax paid and TDS deposits made in time, and it is among the crucial education loan documents. It also verifies the income authenticity of an employee, recorded and validated by the Indian government. It also ascertains that the employee hasn’t defaulted tax and their income is not from fraudulent activities or siphoned off for any other purpose.
- Proof of Income: Form 16 serves as an official document that validates an individual’s income earned during a specific financial year, ensuring transparency and authenticity.
- Tax Computation: It provides a detailed computation of the tax liability of the employee, including the deductions claimed under various sections of the Income Tax Act.
- Facilitates Loan Applications: For individuals applying for loans, especially educational loans, Form 16 acts as evidence of stable income, enhancing their chances of loan approval due to increased credibility.
- Simplifies Tax Filing: Form 16 simplifies the process of filing income tax returns by providing a summarized statement of the income earned and taxes deducted at source by the employer.
- Employee Empowerment: It empowers employees by offering a clear understanding of their earnings, deductions, and tax liabilities, promoting financial awareness and planning.
- Reduces Tax Evasion: By ensuring that employers deduct tax at source and provide Form 16 to employees, the document plays a crucial role in reducing tax evasion and promoting compliance with tax regulations.
- Verification and Authentication: Financial institutions and other entities use Form 16 to verify the authenticity of an individual’s income, thereby preventing fraudulent activities.
Information Included In Form 16 For Education Loans
Higher education loans are categorised as deductions under Chapter VI-A. A deduction for interest on a loan taken for higher education under section 80E is added to other deductions under Chapter VI-A to get the total amount deductible under any other provision(s) of Chapter VI‐A.
The latter calculates the aggregate deductible amount under Chapter VI-A. This figure is deducted from the Gross Total Income to obtain the total taxable income.
Details To Verify On Form 16
With Form 16 having two parts, you must crosscheck the details of either part. Check for the accuracy of the names, addresses, PAN and TAN in Part A. Check for accurate information on taxable salary, allowances, tax liability, deductions, pension, etc. Every employer has to sign Form 16 using the digital signature certificate of an authorised signatory.
You have to check the authenticity of the DSC and validate the details present in the form. The income tax department has a tool to verify Form 16, accessible via the TRACES website.
Filing Income Tax Returns With Form 16
You can use Form 16 to help you file income tax returns. The step-by-step procedure involves:
- Gather all the necessary documents and information. You can download Form 16 in the Vidyalakshmi portal and get copies of your Aadhaar card and PAN, bank statements, etc.
- Sign up and create an account on the Income Tax e-filing portal
- Navigate to the e-filing section and click the “Income Tax Return” button
- Choose the appropriate ITR form that reflects your income and additional factors
- Key in the necessary details such as personal information, income, deductions, and tax payments (You’ll get quite a number of this information from Form 16)
- Validate and submit the data in this form
- E-verify the submission using your preferred option
*NB: The deadline for issuing Form 16 for the financial year 2023-24 is 15 June 2024. The employer should give the employee their Form 16 for TDS deductions from April ’23 to March ’24 on or before that date.
FAQs
Q1. What Is Form 16 for Education Loan?
It is a certificate that verifies that your employer has deducted tax and deposited it in the authorised account.
Q2. How to Obtain Form 16 for My Education Loan?
You must contact your employer and request Form 16 from HR or the accounts department.
Q3. Is Form 16 Mandatory for Claiming Tax Benefits on an Education Loan?
Form 16 is mandatory for claiming any tax benefits on a student loan.
Q4. What Information Is Included in Form 16 for Education Loans?
Form 16 provides a detailed income analysis, including the deductions and any applicable tax benefit from your education loan.
Q5. Where Can I Download Form 16 for My Education Loan Online?
Form 16 is only downloadable from the TRACES website.
Q6. Do I Need Form 16 From the Educational Institution for the Loan or the Bank That Provided the Loan?
You don’t need to provide an ITR or Form 16 for an education loan. However, you have to give your parents or guardians the income documents for collateral security.
Q7. Can I Request a Duplicate Form 16 for My Education Loan if I’ve Lost the Original?
Your employer can give you a duplicate Form 16 if you lose yours.
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