Closing the payroll year and issuing Form 16

01

Finish proofs before the last salary runs

Investment proofs for the year should be collected and verified before the final months' payroll, so that the remaining TDS reflects verified deductions rather than declarations. The investment declarations guide covers that process.

Any deduction declared but not proved is removed from the computation, and the remaining tax for the year is deducted from the last salaries. Tell employees this in advance, because the drop in take-home is otherwise a surprise.

Watch for itDeductions that are only available under the old regime should not be applied to employees who have chosen the new regime. Check each employee's regime before the final computation.

02

Settle every adjustment for the year

Before the last run, clear anything that changes the year's taxable salary: pending arrears, bonuses, perquisite values, reimbursements that are taxable if unsupported, and full and final settlements for leavers.

For employees who joined mid-year, confirm that income and TDS from the previous employer were included, if the employee chose to provide them.

03

Reconcile TDS to the returns

For each employee, total TDS deducted across the year must equal what was reported in the four quarters of Form 24Q. Deposits must match challans, and challans must be correctly tagged to the returns.

Correct differences in earlier quarters through correction returns before generating certificates. Form 16 Part A is generated from what the tax department holds, so an error in a return becomes an error in the certificate.

04

File the fourth-quarter return with salary details

The fourth-quarter Form 24Q includes the annual salary details for each employee: income, exemptions, deductions and tax computed. This is the most detailed return of the year.

The due date for this return and for issuing Form 16 is set by the Income-tax Rules and can change by notification, so check the current dates on the tax department's site each year.

05

Generate and issue Form 16

Form 16 has two parts. Part A, generated from the TRACES portal, shows TDS deducted and deposited quarter by quarter. Part B, prepared by the employer, shows the salary computation for the year.

1. 1Download Part A for each employee from TRACES
2. 2Prepare Part B from the final payroll computation
3. 3Check that Part A tax totals equal Part B tax totals for each employee
4. 4Sign the certificates as the rules allow
5. 5Issue to current employees and to leavers who worked during the year

06

Close the year in payroll

Lock the final month, archive the year's registers, returns and certificates, and open the new year with fresh declarations. Employees should choose their regime and declare investments for the new year before the first salary is computed.