Form 16 verification: What employers ought to know

5 out of 10 candidates lie on their resume. And, lying about previous job compensation tops their list. Form 16 verification as a part of employee background verification helps employers identify the exact compensation of a candidate for a financial year. Thereby, ruling out candidates who present false salary information. 

What is the purpose of Form 16?

Form 16/ 16A is the certificate issued by the employer on behalf of the employees.  It is the certificate of tax deduction at source. It is mandatory to issue these certificates to the tax payers (employees). The certificate provides details of TDS / TCS for various transactions between the deductor and the deductee. 

What is Form 16 eligibility salary?

The annual eligibility salary to issue Form 16 is ₹2,50,000. This is because if your annual income for the year is below ₹2,50,000, you are exempted from tax paying and hence from filing an ITR for Form 16. 

Hence, Form 16 verification can verify the salary of while collar employees (a white collar salary usually exceeds 2.5 LPA). 

Why is Form 16 verification important?

When a company deducts tax from its employees’ salaries at source, the Income Tax Act legally requires the employer to issue a Form 16. A Form 16 acts as the basis for an employee’s income tax returns and is one of the most important documents. 

Form 16 contains all salary transactions of an employee, including the tax deductions. Verifying Form 16 can identify the exact salary of a candidate for a given year.

If the Form 16 check results and the candidate’s claims regarding the past compensation match, employers can freely decide a suitable salary for the candidate.

A green Form 16 verification case can also provide a strong basis for employment verification.

What are the contents of Form 16?

Components of Form 16 Part A TDS Certificate:

1. Employer’s name, TAN no., PAN card no., and address 
2. Employee’s name, PAN card no. & address
3. Details of tax deducted & deposited quarterly with the government
4. Year in which the employee paid the TDS 
5. Time period of employment with the employer
6. TDS payment acknowledgement no.

Note: If an employee has worked for more than one employer during the financial year, then s/he will get 2 Part A of Form 16.

Components of Form 16 Part B TDS Certificate:

• Detailed salary particulars like HRA, deductions claimed like PPF, NSC, pension, gratuity, leave encashment, LTA, etc
• Deductions allowed under the income tax act of chapter 6A
• Education tax and surcharge (if any)
• If you were having more than one jobs in a year, you’ll get more than one Form 16
• The employer prepares the Part B Form himself and issues it along Part A

Why combine Form 16 verification with credit check?

Credit check gives you a report of a candidate’s financial behaviour. Certain high risk jobs may require the employee to be financially reliable. After-all, a financially irresponsible individual in a high-risk job role may pose potential risk for fraud. Here, credit check combined with a Form 16 verification can help employers take better hiring decisions.

How is Form 16 verification conducted?

In a Form 16 verification, the amount of TDS deducted for a candidate’s PAN (Permanent Account Number) is verified against details from the employer’s TAN (Tax Deduction and Collection Account Number). 

Here are an individual’s details that an employer can obtain from a Form 16 verification:

• Name of the individual as it appears on the PAN
• Former employers of the individual (only employers who deducted tax at source)
• Amount of TDS deducted for each quarter