INTRODUCTION:
In today’s rapidly changing world, switching jobs is a common career decision in various industries and at different stages of the professional journey, be it entry-level, mid-phase, or retirement. The motivations behind such transitions are improved work-life balance, financial prospects, etc. A salaried individual in India has several basic income tax compliances to fulfil, a few of them are providing PAN details, filing ITR (Income Tax Returns), paying Advance Tax (if applicable), and so on. However, while changing an employer, one needs to take care of a few compliances, the failure of which will lead to attracting interest and penalties.
THINGS TO BE KEPT IN MIND:
1. A salaried individual is required to fill form ITR 1 by 31st However, in case one changes the employer in the middle of the year, make sure to consolidate income from both employers.
2. Form 16 is a certificate that contains details of the salary income earned by the employee during the financial year, as well as the Taxes Deducted at Source (TDS) by the employer. The due date for employers to issue Form 16 is 15th June of assessment year. However, in case an individual leaves an organization in between, the employer is required to give Form 16 for Interim period. So, make sure to collect Form 16
from both employers. A sample format of Form 16 is given below:
3. Also, when one joins a new organisation, he/she is required to fill Form 12B. It is an income tax statement that contains details pertaining to the salary received by an employee from his previous employer during the financial year.
4. An individual joining an organisation is also required to fill Form 12BB. It is basically a statement of claims by an employee for the deduction of tax. To claim tax benefits or rebates, this form needs to be submitted at the end of the financial year. Also, on the basis of this form the new employer will be deducting TDS.
5. Form 16 has 2 parts, namely Part A and Part B. Part B consists of details of salary paid, other incomes, deductions allowed, tax payable, etc. So, make sure to disclose all other incomes earned in your Form 16.
PROBLEMS FACED & SOLUTIONS TO IT:
1. CLAIMING BASIC EXEMPTION LIMIT TWICE:
In case your employer has not taken into account that the Basic Exemption limit is already claimed by your previous employer, it can lead to penalties and legal consequences. Since claiming the basic exemption limit twice implies that you are under–reporting your total income.
Simplifying it further, take for instance an Individual switched jobs and his salary details are as follows:
|
Particulars |
Income from ABC Ltd. | Income from XYZ Ltd. | Actual tax liability |
| Income from salary | 500000 (From Apr-Sept) | 700000 (From Oct-Mar) | 1200000 |
| Less: Basic Exemption Limit | (250000) | (250000) | (250000) |
| Taxable Income | 250000 | 450000 | 650000 |
| Tax liability | 0 | 10400 | 44200 |
CONCLUSION: Here, if considered individually, Rahul’s income falls under the tax bracket of 5%. However, the actual tax bracket under which his income falls is 20%. This may attract interest.
SOLUTION: In order to avoid this problem, submit Form 12BB so that you can get information about the previously earned salary and the basic exemption limit claimed.
2. CLAIMING STANDARD DEDUCTION TWICE
The Standard Deduction is a fixed amount that reduces the taxable income, providing a simplified way for individuals to lower their overall tax liability. It is a valuable benefit for salaried individuals, as it allows them to deduct a specific amount from their income before calculating taxes. However, claiming the standard deduction twice in a tax year can lead to complications with the tax authorities.
SOLUTION: In order to avoid this problem, submit Form 12BB so that you can get information about the previously earned salary and the basic exemption limit claimed.
3. CLAIMING DEDUCTIONS (CHP VI A) TWICE:
If the new employer has not taken into account that the old employer has already claimed deductions, you might end up owing tax even after claiming deductions.
For instance, let’s say you contributed ₹1,50,000 to your EPF (Employee Provident Fund) during a financial year. Now, if both the employers have considered your contribution in EPF while filing the income tax return and claimed deduction under Sec 80C, it would result in double deduction and will be disallowed.
SOLUTION: In order to avoid this problem, submit Form 12BB so that you can get information about the previously earned salary and the basic exemption limit claimed.
4. DISCREPANCY IN FORM 16 AND FORM 26AS:
CASE 1- Where there is a mismatch in TDS Details:
So, Form 26AS is a statement that provides details of any amount deducted as TDS or TCS from various sources of income of a taxpayer. TDS should be ideally the same in Form 16 and Form 26AS. However, it may be possible that due to employer’s mistake there might be some errors leading to a mismatch.
TDS is a mechanism where the employer deducts a certain amount from the employee’s salary to meet their tax liability. This ensures a steady inflow of taxes to the government and prevents tax evasion. Understanding TDS is crucial for comprehending the details in Form 16 and Form 26AS.
SOLUTION: Inform the respective employer to file a revised TDS return and get the corrective actions taken immediately.
CASE 2- Where TDS is not deducted by both the employers:
In case, the TDS is not deducted by both the employers, it will lead to non-compliance of Tax laws. It can also lead to a higher tax burden while filing your income tax return.
SOLUTION: In order to avoid such a situation, pay Advance Tax in four instalments throughout the financial year.
CONCLUSION: By adhering to the above compliances, salaried individuals can make a smooth transition to a new employer while avoiding legal and financial complications. However, it is always suggested to consult a financial advisor for personalized guidance in specific cases.
5. MAINTAINING FINANCIAL RECORDS:
Keeping track of your financial paperwork is like having a roadmap for a smooth job change and staying on the right side of tax rules. It’s not just about paperwork – it helps you report your income correctly for taxes, ensuring you don’t miss out on any benefits. Think of it as your financial history book; it comes in handy if tax authorities ever want to check things. Plus, having organized records helps you plan your money better, understand your spending, and make smart financial decisions. When you switch jobs, having these records makes settling into the new job easier – it’s like having a cheat sheet for your financial past!
(This article represents the views of authors only and does not intend to give any kind of legal opinion on any matter.)
Authors:
Vishal Kothari
Partner | +91-9320614111 |
Email: [email protected] |
Divya Gahlot
Associate Consultant | +91-7977260913 |
Email: [email protected] |
www.masd.co.in
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