When filing taxes it’s important to know about your nature of employment to file the correct form. Because you file different forms based on this information.
With a great job and career ahead you might have lot of plans for the future. It’s also important to save. With that note let’s begin the post.
A salaried job with a company does not automatically make you a salaried individual. Those two things are different.
Even with a salary your employment may differ from person to person. So now you may ask why it is important to know what the employment type is. A monthly income from a company doesn’t entitle you to a permanent job.
Nature of your Employment is divided into two categories:
Salaried Employees (form 16) and
Contracted Professionals (form 16A).
Self employed and other consultant positions fall under category 2.
1. Duration: If it’s a contract, the contract will certainly mention the time period of employment during which period you will remain an employee. In most cases words like retainership or professional services will be used to describe the nature of your contract.
2. Pay Structure: Along with things like duration there will also be mention of other pay structures like salary and perks given as part of being employed.
Salaried individuals will find a litany of perks along with deductions. Perks like DA, HRA and Basic pay are included along with allowances for petrol, maid, and food if any.
Contracted professionals don’t get any additional perks such as these and the only deduction might be TDS which is Tax Deducted at Source if your earnings are above the taxable limit.
3. Pay Slip: Being a salaried professional you get a pay slip that lists deductions gross salary and the in hand salary you get. For contracted workers you will only get a pay slip indicating your remuneration for services rendered.
4. TAX Certificate – Form 16 vs. Form 16A: The tax certificate is different for different kinds of employees and your company might provide you with either form 16 or form 16A depending on your employment status.
Form 16 form comes under section 203 of the IT act for TDS deducted.
Form 16A is exclusively for contracted staff.
Instances in daily life where you have to mention your employment status.
1. Tax Filing: Salaried employees will get a low amount deducted as tax which also means refund amounts are lower. For contract employees the amount deducted will be much higher since there are no deductions to consider. Afterwards you can apply for refund showing business expenses and claim refund.
2. Loan and Credit Card Applications: Loan applications always demand a person’s employment status as this is what them determine if the applicant is eligible to get a loan. As an employee the process if faster and hassle-free.
With 16A and the contracted status there’s always the chance that the contract will be terminated any time. There’s no assurance of income and that is high risk for banks.
4. Termination of contract: An employee can be protected under the labor union and there will be guidelines on how and when he can quit. There’s no such surely with contracts and the contract can be terminated rather than renewed.
5. Certain Insurance Covers: Insurance covers call for employment status and premiums are higher for contracted employees.
In every job you need to know the status of your employment and its nature. Form 16 or 16A clears up lot of the air around the employment status quo.
