Changing jobs : 4 things to keep your taxes in check

It’s common for people to move jobs during the financial year going after better pay or better work. While most career moves bring heavier pay packets, don’t let these changes bring you any kind of tax worries. Keeping these tips in mind will help you avoid the hassles that come with career moves.

(1) Declaring your salary income from previous employer to the new employer – Your employer calculates your TDS basis the salary they pay during the year.  So the employer will first give you the benefit of minimum exemption limit of Rs 2,50,000 and then apply tax slabs on your income. If the new employer has no clue about your income from old employer, he may still end up giving you this minimum exemption again or apply slab rates incorrectly. When you’ll finally consolidate your incomes – you may end up seeing a tax payable, since exemption was granted twice some income may not have been taxed properly.

Let’s understand by way of an example. Say you left your job at Company X on 31st July and joined company Y on 1st August. Your salary income from your first employer X was Rs 70,000 monthly uptil 31st July and you disclosed 80C deductions of Rs 75,000. Now when you joined Y your salary from Y uptil 31st March is monthly Rs 80,500 and you ended up investing Rs 1,00,000 towards 80C. See how the 2 employers will calculate & deduct your tax.

Tax Calculations

Now let us list down what all has gone wrong with this kind of tax calculation.

  • Your 80C deductions have been considered twice over.
  • Minimum exemption has been granted twice.
  • Incorrect slab rates have been applied.

Now we will see what should have been the actual tax payment/deduction. When you disclose your income & deductions from Company X to company Y, the total tax calculation will be.

Final Tax Calculation

When the incomes from the both the employers are added up, the final tax liability in this example works out to Rs 39,800, against Rs 9,332 + Rs 4,400 = Rs 13,732 that has been deducted. Discovering this at the time of filing your return may turn out to be very disappointing. Also, you may have to pay interest & penalty on delayed tax payments.

Therefore you must disclose your Income from your previous employer to your current employer. In the next step let’s look at what all information you must keep in mind to disclose to your new employer. When you file your return at ClearTax, you won’t have to worry about complex tax calculations, once you have entered your income details, your tax will be automatically computed. You also have the option of automatically updating your TDS details on ClearTax directly from the IT Department – so that you do not miss to adjust TDS deducted on your income by any of the employers.

To submit your income details from old employer to the new employer, Form 12B is available and you can fill up this form and provide all your salary & TDS related information.

(2) Documents and details you need to disclose to your new employer – While you will be providing salary information, do remember to share the following details as well –

  • Rent details like rent agreement, rent receipts, to continue to claim HRA exemption
  • Interest on home loan and house property income details
  • Medical Expenses already claimed from the Rs 15,000 eligibility
  • Section 80 Deductions – investments, expenses or payments made in this regard.

Although besides salary one can take care of claiming deduction while filing return too – however, it’s always wise to disclose these details to your employer so tax on these incomes is deducted and deposited timely.

(3) When Joining Bonus with previous employer is recovered – Usually companies pay joining bonus with some strings attached – if you happen to leave them before the signed up period, such joining bonus is recovered from you. In some cases TDS on such a bonus amount may be eligible to be refunded or adjusted, depending on the terms and conditions under which it was received initially. Do remember to claim the tax deducted on the bonus amount in your return if eligible.

(4) Two Form 16s – If an employer deducts TDS, as per the Income Tax Act, it is mandatory for them to provide you a Form 16. Though Form 16 is usually provided only at the end of the financial year – having Form 16 from both your employers will be very helpful while filing your return. So do remember to collect your Form 16 from your previous employer. On ClearTax you can file your return with multiple Form 16s.

 

If you have any more questions regarding Income Tax when changing jobs –
Reach out to us for help!

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