Form 16 for FY 2025-26: What Has Changed Under the Income Tax Act 2025 and How to Issue It Correctly

Every year, May and June mark a critical period for employers, HR teams, payroll managers, and Chartered Accountants across India.

This is the time when Form 16 must be prepared and issued to salaried employees so they can proceed with their income tax filing for the assessment year. For FY 2025-26, however, this process carries added complexity that every employer and CA firm must fully understand before generating a single certificate. The Income Tax Act 2025 came into force on April 1, 2026, replacing the Income Tax Act 1961 after more than six decades. This structural overhaul has directly impacted how Form 16 is prepared, what section references appear in it, and how the certificate connects to the employee's income tax return for AY 2026-27. Issuing Form 16 for FY 2025-26 without understanding these changes is a compliance risk - not just for the employee's ITR, but for the employer's own TDS filing records. This guide covers everything you need to know: what Form 16 is, what its two parts contain, what has specifically changed under the Income Tax Act 2025, the correct process to issue it, common errors to avoid, and the deadline you cannot afford to miss.

What Is Form 16 and Why Does It Matter for Income Tax Filing?

Form 16 is the TDS certificate issued by an employer to an employee, confirming that tax has been deducted from the employee's salary during the financial year and deposited with the government. It is the most important document a salaried employee needs to file their income tax return accurately. Under the income tax e filing framework on the Income Tax portal, a significant portion of the ITR is now pre-filled using data pulled directly from Form 26AS and the Annual Information Statement. However, Form 16 remains indispensable because it provides the breakdown of salary components, exemptions claimed, and Chapter VI-A deductions declared by the employee to their employer - details that are not always fully captured in pre-filled data. For the employer, issuing a correct and timely Form 16 is a statutory obligation. Failure to issue it, or issuing one with incorrect data, is a violation under the Income Tax law and can attract penalties.

Form 16: Part A and Part B Explained

Form 16 Part A
Part A is generated directly from the TRACES portal (TDS Reconciliation Analysis and Correction Enabling System) maintained by the Income Tax Department. It is system-generated based on the data filed by the employer in Form 24Q - the quarterly TDS return for salary deductions. Part A contains:

• Name and address of the employer (deductor)
• Employer's TAN and PAN
• Name and PAN of the employee (deductee)
• Assessment year and financial year
• Summary of tax deducted and deposited each quarter
• Challan details including BSR code, challan serial number, and date of deposit

Part A can only be downloaded from TRACES after the employer has filed all four quarters of Form 24Q. This makes accurate and timely TDS return filing a prerequisite for generating a valid Form 16.

Form 16 Part B
Part B is prepared by the employer and provides the detailed salary computation along with all exemptions and deductions considered while calculating the TDS liability for the year. It is an annexure to Part A and must accompany it to form the complete Form 16 certificate. Part B contains:

• Gross salary breakdown - basic pay, HRA, special allowances, bonuses, perquisites
• Exemptions under the new or old tax regime as chosen by the employee
• Standard deduction
• Deductions under Chapter VI-A declared by the employee
• Net taxable income after all deductions
• Tax computed, rebate applied, surcharge, cess, and net tax payable
• TDS already deducted reconciled against total tax liability

What Has Changed in Form 16 for FY 2025-26 Under the Income Tax Act 2025

1. All Section References in Form 16 Part B Have Changed
The Income Tax Act 2025 restructured the entire legislation from scratch, resulting in new section numbers for every provision - including those for salary TDS, exemptions, and deductions. Old references such as Section 192, Section 80C, Section 80D, and Section 10(13A) now carry different section numbers. Part B must reflect the new numbering throughout.

2. Tax Regime Declaration Has Greater Significance
From FY 2025-26 onwards, the new tax regime is the default regime. Employees must explicitly declare if they opt for the old regime. Mismatch in regime selection leads to reconciliation issues in ITR filing.

3. Standard Deduction Amount Update
The standard deduction for salaried employees was revised in the Union Budget 2024 and must be correctly reflected in Form 16 Part B as per applicable regime.

4. Form 24Q Alignment Is Critical
Part A depends entirely on Form 24Q filings. Errors in quarterly TDS returns directly impact Form 16 accuracy.

5. TRACES Portal Now Reflects New Section Codes
TRACES has been updated for FY 2025-26 to align with Income Tax Act 2025 section codes. Part A and Part B must be consistent.

Who Must Issue Form 16 for FY 2025-26

Every employer who has deducted TDS from employee salaries during FY 2025-26 is required to issue Form 16. This obligation applies regardless of the employer's size - from a small business with two salaried employees to a large corporation with thousands of staff members.

If an employee's salary was below the basic exemption limit throughout FY 2025-26 and no TDS was deducted, the employer is not strictly required to issue Form 16 under the statute. However, many employers issue it anyway as a best practice because employees still need salary proof for income tax filing and loan applications.

Employers who changed payroll vendors, switched accounting software, or restructured salary components mid-year must take extra care. These situations can cause salary data fragmentation that makes Part B preparation difficult and error-prone. Reconciling the full-year salary figure before generating Form 16 is essential in such cases.

The Form 16 Deadline for FY 2025-26: June 15, 2026

The statutory deadline for employers to issue Form 16 to employees for FY 2025-26 is June 15, 2026. This is a hard deadline under the income tax law. Failure to issue Form 16 by this date attracts a penalty of Rs. 100 per day per certificate under the applicable provision of the Income Tax Act 2025 until the default continues.

For CA firms and payroll managers handling multiple employer clients, the June 15 deadline must be treated as a firm cutoff. Working backwards from June 15, the preparation timeline looks like this:

• By May 15: Ensure Form 24Q for Q4 (January to March 2026) is filed accurately
• By May 20–25: Download Form 16 Part A for all employees from TRACES
• By May 31: Complete Part B preparation for all employees with verified salary data
• By June 10: Review and sign Form 16 (digital signature recommended), distribute to employees
• By June 15: Ensure every eligible employee has received their Form 16

Starting this process in the last week of May or first week of June is too late, especially for employers with a large workforce or CA firms handling multiple payroll clients simultaneously.

Step-by-Step Process to Issue Form 16 for FY 2025-26

Step 1: File Form 24Q for all four quarters.

Before anything else, confirm that Form 24Q has been filed for all four quarters of FY 2025-26 - Q1 (April to June 2025), Q2 (July to September 2025), Q3 (October to December 2025), and Q4 (January to March 2026). Part A of Form 16 cannot be downloaded from TRACES unless all quarters are filed.

Step 2: Verify TDS data on TRACES portal.

Log in to the TRACES portal and verify the TDS data under your TAN. Check that all challan details are correctly mapped, employee PANs are accurate, and the total TDS deducted matches what appears in employees' Form 26AS on the income tax portal. If you find mismatches, file a correction statement for the relevant quarter before proceeding.

Step 3: Download Form 16 Part A.

Once all quarters are filed and verified, request the Form 16 Part A download from TRACES for FY 2025-26. TRACES generates Part A with a unique certificate number for each employee. This certificate number must be recorded and carried forward into Part B as well. Download the digitally signed Part A certificates for all employees in bulk where possible.

Step 4: Prepare Form 16 Part B for each employee.

Part B is prepared by the employer using the salary records maintained throughout the year. For each employee, compile the complete salary structure, verify the tax regime opted, apply the correct deductions and exemptions as declared by the employee, and arrive at the final taxable income and tax computation. Ensure all section references in Part B are aligned with the Income Tax Act 2025 numbering.

Step 5: Merge Part A and Part B.

Most TDS filing software provides a built-in utility to merge Form 16 Part A (downloaded from TRACES) with the employer-prepared Part B to generate the final, complete Form 16 certificate. The merged certificate should be reviewed once more before distribution to catch any formatting or data inconsistencies.

Step 6: Issue digitally signed or physical Form 16 to employees.

Form 16 can be issued digitally using a valid Digital Signature Certificate (DSC). Digitally signed Form 16 is legally valid and is the preferred format since employees can upload it directly on the income tax e filing portal or share it with their CA for ITR preparation. Ensure each employee receives the certificate before June 15, 2026.

Common Mistakes Employers Make While Issuing Form 16

Despite being a familiar process, Form 16 errors are surprisingly common every year. Here are the most frequent mistakes and how to avoid them for FY 2025-26.

Mismatch Between Part A and Part B Salary Figures

One of the most common problems is a discrepancy between the gross salary figure in Form 16 Part A and the salary breakdown in Part B. This happens when employers update salary components in their payroll system mid-year but do not reconcile the full-year figures before generating Part B. Always cross-check the gross salary total in both parts before finalising.

Wrong Tax Regime in Part B

Issuing Form 16 Part B under the old tax regime for an employee who opted for the new regime - or vice versa - is a serious error. The employee will not be able to file their income tax return accurately if the tax regime in Form 16 does not match the regime they intend to use for filing. Verify every employee's regime declaration before preparing Part B.

Outdated Section References Under Old Act

Using TDS or payroll software that still carries Income Tax Act 1961 section numbers in Form 16 Part B is a compliance gap for FY 2025-26. Since the Income Tax Act 2025 is now the operative law, all references in the certificate must follow the new section structure. Update your software before generating any Form 16 for this financial year.

Not Downloading Part A After Filing Correction Statements

If you filed correction statements for any quarter of Form 24Q after the original return, you must re-download Part A from TRACES after the correction is processed. Many employers download Part A after filing the original return and later file corrections, but forget to download the updated Part A. The outdated Part A will carry incorrect TDS figures.

Missing Employees Who Left Mid-Year

Employees who resigned or retired during FY 2025-26 are also entitled to Form 16 for the period they were employed. Employers sometimes overlook these employees while running bulk Form 16 generation. Maintain a complete list of all employees who were on payroll at any point during FY 2025-26 - not just those currently employed - and ensure Form 16 is issued to all of them.

How Form 16 Connects to the Employee's ITR for AY 2026-27

For the salaried employee, Form 16 is the starting point for their itr filing process. When the employee or their CA accesses the pre-filled ITR on the income tax e filing portal at incometax.gov.in, the salary income, TDS deducted, and some deduction details are already populated from Form 26AS and the AIS.

However, the detailed salary breakup, exact exemption amounts claimed, and Chapter VI-A deduction figures must be verified and, where necessary, corrected against the actual figures in Form 16. The employee cannot blindly submit the pre-filled data without cross-checking it against their Form 16, particularly in a year where section references have changed under the new Income Tax Act 2025.

Any mismatch between what is in Form 16 and what the employee declares in their ITR will be flagged during processing. If the TDS credit in Form 26AS does not match what is claimed in the ITR, the return may be processed with a demand or sent for verification. This is why issuing an accurate Form 16 is as important for the employer's compliance reputation as it is for the employee's income tax filing experience.

Why Income Tax Filing Season 2026 Demands Extra Diligence

AY 2026-27 is the first ITR filing season under the Income Tax Act 2025. The tax filing deadline for most individual taxpayers and non-audit cases remains July 31, 2026. For businesses and professionals requiring an audit, the deadline is October 31, 2026.

But this year, both employers and employees are navigating a changed legislative framework for the first time. The new Act's section numbers, restructured schedules, and updated ITR forms all require a higher level of attention to detail at every step - from salary TDS deduction and Form 24Q filing, through Form 16 generation, to the final submission of the income tax return on the income tax portal.

Employers who invest in ensuring their Form 16 for FY 2025-26 is accurate, compliant with the Income Tax Act 2025, and issued before June 15 will be making the entire downstream process - employee ITR filing, TDS credit reconciliation, and AIS verification - significantly smoother for everyone involved.

Key Takeaways for Employers and CA Firms

Form 16 for FY 2025-26 is not a routine year-end exercise. The shift to the Income Tax Act 2025 means that the section references, format guidance, and regime-related computations inside the certificate have all changed. Employers who treat this as just another Form 16 cycle and rely on unupdated software or manual processes risk issuing non-compliant certificates that create problems for their employees at the time of ITR filing.

Start the Form 16 preparation process in May itself. File Form 24Q for Q4 by May 15 accurately. Download Part A from TRACES promptly. Prepare Part B with the correct section references under the new Act. Verify every employee's tax regime, salary figures, and declared deductions before issuing the final certificate. And distribute Form 16 to every eligible employee well before June 15, 2026.

Doing this right the first time saves considerable back-and-forth with employees, avoids correction requests, and builds confidence in your compliance processes as the new Income Tax Act 2025 era begins.

Disclaimer: This article is for informational purposes only. Compliance requirements, due dates, and regulatory provisions are subject to change based on government notifications. Please verify all deadlines and filing requirements on the relevant official portals before acting.