Changing jobs in the middle of the year can bring unexpected tax challenges. With some planning, however, you can avoid surprises and manage your tax liability effectively.
When you switch jobs, your income for the year may shift significantly. It’s crucial to familiarize yourself with tax brackets to estimate how your new salary will impact your tax situation.
Monitor your earnings from both employers. If you receive a bonus or commission from your previous job, it could push you into a higher tax bracket, leading to a greater tax liability.
In this article, we will discuss how to manage tax implications on your salary for switching jobs mid year.
Changes in Income Tax Slabs and Rates
Your income may change significantly if your new job pays more or less than your previous one. This can affect your tax bracket, potentially increasing or decreasing your overall tax rate.
Review your new salary structure. Components like Basic Pay, HRA, and Special Allowance can impact tax liability. Optimize your salary structure to maximize tax benefits.
In India, some companies give employees the option to design their salary packages. This means employees can choose how much of their pay goes into different categories, like basic salary, bonuses, or allowances for things like travel or housing. By structuring their salaries this way, employees can take advantage of tax rules that reduce the amount of tax they have to pay.
If your new job offers a significantly higher salary, you may move into a higher tax slab, which means you’ll pay a higher percentage of tax on the income exceeding the lower slab limits.
Conversely, if your new job pays less, you might move to a lower slab, potentially decreasing your tax liability.
Additionally, any bonuses or leave encashment from your previous employer will be taxable, so include these in your total income for the financial year.
Calculate your cumulative income from April to March to determine your accurate tax liability.
Avoiding Double Deductions
Switching jobs can sometimes result in double tax deductions, complicating your income tax calculations.
Both your previous and new employers may calculate Tax Deducted at Source (TDS) based on the income they know about, potentially leading to deductions for the same income period.
To prevent this, provide your new employer with accurate details about your previous salary and TDS. Failure to do so might result in higher deductions than necessary.
Remember that you can claim deductions under Section 80C with both employers. If these aren’t accurately accounted for, you may face an increased tax burden.
Submit form 12B to new employer
In India, Form 12B is essential for informing your new employer about your previous salary.
Form 12B ensures the correct amount of tax is deducted based on your total income.
When starting a new job, submit Form 12B if you’ve received salary from a previous employer within the same financial year.
The form 12B should include:
- Details of your previous employer (name, address, PAN).
- Salary earned in the previous employment.
- TDS deducted by the previous employer.
- Any other income (like bonuses, etc.) earned during that period.
This form helps your new employer accurately calculate TDS, preventing under- or over-deduction and minimizing potential tax liabilities at year-end.
Steps for Filing Your Income Tax Return
Managing taxes in India, especially with salary from past employment, involves understanding how to report income, calculate tax liability, and take advantage of any applicable deductions or exemptions.
Here’s a step-by-step guide to help you navigate this process:
- Gather Form 16: Obtain your Form 16 from your previous employer, detailing salary, tax deducted at source (TDS), and other relevant information.
- Collect Other Income Documents: Include bank statements or interest certificates if applicable.
- Calculate Total Income: Add up all income sources for the financial year, including any freelance work or interest earnings.
- Identify Deductions: Familiarize yourself with available tax deductions.
- Determine Taxable Income: Subtract eligible deductions from your total income.
- Check TDS Amount: Compare tax deducted at source (TDS) from your Form 16 with your calculated tax liability.
- Calculate Net Tax Liability: Apply the applicable income tax slabs to your taxable income to determine your net tax liability.
- Choose the Right ITR Form: Select the appropriate Income Tax Return form based on your income sources (e.g., ITR-1 for salaried individuals).
- File Your Return: Submit your return online or through a tax professional.
- Apply for Refund: If excess TDS was deducted, don’t forget to apply for a tax refund.
By following these steps, you can effectively manage taxes related to your salary from past employment in India.
Keep records of all income, tax forms, and deductions throughout the year. This will make filing your taxes easier and help you avoid missing any potential deductions.
If you’re uncertain about how your job change might impact your taxes, consulting a tax professional can provide personalized advice and help you strategize.
Frequently Asked Questions (FAQs)
How can I combine my income and deductions from different jobs when filing my taxes after changing jobs twice last year?
First, make sure you have the Form 16 documents from all your employers for the year. Each Form 16 shows your salary, the tax deducted from your pay, and other important details.
Next, add up your total salary from all the Form 16s to find your total income for the year.
Then, add up any eligible tax deductions you have, making sure they don’t go over the limits for each type of deduction.
Also, add the tax amounts deducted by each employer, which is listed in your Form 16. This shows how much tax has already been paid for you.
Use this total income and total deductions to fill out your tax return form. Make sure to enter everything accurately to avoid mistakes.
If the total tax deducted (TDS) is more than what you owe, you can get a tax refund.
Finally, keep copies of all your Form 16s and other documents for future reference or if you need to show them later.
What should I do if the TDS amount on my Form 16 doesn’t match what’s on my Form 26AS?
Normally, the TDS amounts on Form 16 and Form 26AS should match because both come from the same source. There shouldn’t be any manual changes by your employer.
If you notice a difference, first contact your employer’s HR or finance department. Explain the issue and ask if they filed their TDS returns correctly and on time.
Sometimes, it can take a while for the TDS information to show up in Form 26AS, so you might want to check back later.
If your employer confirms that the TDS on Form 16 is correct, you can use that amount for your tax return. Just be aware that this mismatch might cause some adjustments later on.
If Form 26AS shows a higher TDS amount, use that figure instead and keep a record of your communications with your employer.
If your employer admits there was a mistake, they may need to file a correction with the tax authorities. Make sure to ask for confirmation once they fix it.
What should I do if I find mistakes in my Form 16?
First, carefully check your Form 16 for common mistakes. Look for errors in your personal details (like your name, PAN, or address), salary amounts (like basic salary, bonuses, and allowances), deductions, exemptions, and TDS amounts.
Next, gather any documents that can help explain the mistakes, such as pay slips, old Form 16s, or emails with your employer.
Then, contact your employer’s HR or finance department. Tell them about the mistakes you found and share any supporting documents. Ask for clarification on how these errors happened.
If your employer agrees there’s a mistake, ask them to give you a corrected Form 16. If the mistake affects the TDS, they may need to inform the tax authorities.
Once you get the corrected Form 16, double-check that all the details are correct by comparing it with your pay slips and other records.
Keep both the original and the corrected Form 16 for your records. Also, note any communication you had with your employer about the mistakes.
Use the corrected Form 16 to file your tax return. If you’ve already filed your return using the wrong Form 16, you might need to revise it if you’re still within the allowed time.
What other types of income should I include when figuring out my income tax besides my salary?
When calculating your income tax, you should include all sources of income, not just your salary. Here are some additional types of income to consider:
- Interest from savings accounts, fixed deposits, recurring deposits, and bonds.
- Money earned from renting out property.
- Income from business or freelance work, like consultancy fees.
- Profits from selling investments, such as stocks, mutual funds, or real estate.
- Dividends received from shares in companies.
- Earnings from farming or agricultural activities, which may have special tax rules.
- Other income like lottery winnings, gifts over a certain amount, or any other taxable income.
Make sure to keep accurate records of all these income sources. This will help you when filing your tax return and verifying your income with tax authorities.
What important details should I check in my Form 16 to make sure it’s correct?
To make sure your Form 16 is accurate, you should check these key details:
- Make sure your name matches what’s on your PAN card.
- Verify that your Permanent Account Number (PAN) is correct.
- Check that your address is accurate.
- Confirm that your employer’s name is listed correctly.
- Ensure your employer’s PAN is correct.
- Look at the total gross salary to make sure it’s right.
- Review the deductions (like Provident Fund and professional tax) to see if they match your pay slips.
- Check that allowances, such as House Rent Allowance (HRA), are accurate.
- Make sure the TDS deducted matches your records (like pay slips).
- Verify that TDS calculations are correct based on your taxable income.
- Confirm that any exemptions and deductions you claimed are correctly shown.
- Check that the summary of your taxable income reflects your earnings after deductions.
- Ensure the financial year mentioned is the one you’re filing for.
- Look for the employer’s signature or authorization on the form.
- Make sure both Part A (TDS summary) and Part B (detailed salary breakdown) are included and correct.
- If you have a revised Form 16, check that all corrections are made.
If you find any mistakes, contact your employer’s HR or finance department for corrections. Keeping good records will help make your income tax filing easier.
