Tax consequences of switching Jobs during the year

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By Hiral Vakil on January 29, 2020

People change jobs for higher salaries, better prospects, better exposure, etc. Taxes are one of the concerns for those who change jobs mid-year. Communicating your last drawn salary and deductions claimed can solve half of your problems. The following are the consequences of switching jobs.

Higher tax bracket due to switching jobs

Always check if the new job is putting you in a higher tax bracket. Let’s say if you are currently earning a Taxable Salary Income of INR. 7,50,000 in the 20% tax bracket. And after switching jobs, your Taxable Salary Income is INR. 10,65,000 which will take you into the 30% tax bracket. This could mean a substantially higher tax outgo. Which you need to communicate with your employer and ask them to deduct your TDS accordingly.

Furnishing Form 12BB with the previous salary details

Once you join the new employer, he/she will ask you to submit Form 12BB. Which includes the details of salary paid by previous employer and TDS deduction. One needs to be careful while filling Form 12BB as it will be the basis on which your employer will deduct TDS in the remaining month of the financial year.

Take a copy of Form 16 from the previous employer

Don’t forget to take a copy of Form 16 from your previous employer. Even though Form 16 is available after the end of the financial year, you will receive an interim Form 16 from your previous employer including details of salary paid, TDS deducted on your salary. This will help you to fill up Form 12BB which you need to submit to your new employer.

You can also submit Taxable Salary of Previous Employer from your Form 26AS.

Avoid claiming Deductions twice

Only claim tax-saving deductions and exemptions once. You can avoid this situation by submitting Form 12BB to your new employer. Just make sure that you claim only those deductions which you did not claim during earlier employment.

If you were unable to submit Form 12BB then you may have to check whether you are liable to pay any Advance Tax or Self-Assessment Tax. If your new employer has not taken into account your old employer’s TDS and deductions claimed, you might end up owing tax along with some interest penalty. In that case, you will end up with tax dues even after the deduction of TDS by both the employer.

Let’s take an example to understand:

Dinesh switched jobs during FY 2018-19. The following are his salary and TDS details.

Particulars Income from
ABC ltd (in INR)
Income from
XYZ ltd (in INR)
Actual tax liability (in INR)
Income from Salary 5,00,000 (April-September) 7,00,000 (October-March) 12,00,000
Less:
Basic Exemption Limit
(2,50,000) (2,50,000) (2,50,000)
Taxable Income 2,50,000 4,50,000 6,50,000
Tax Liability 0 10,400 44,200
Monthly TDS deducted by the employer 0 1733 for six months  
Total TDS deposited by employer 0 10,400 10,400
Tax liability at the year end     44,200
TDS shortfall     33,800

 

Conclusion:

  • Higher Tax Bracket: When total salary income from both the employer is considered, Dinesh’s income falls under a 20% tax bracket.
  • Double Deductions: Both the employers considered basic exemption limit of INR. 2,50,000 before deducting TDS. Hence there is a shortfall of INR. 33,800 which Dinesh will have to pay with interest penalty before he files his ITR.

You can avoid a shortfall in taxes by communicating your previous employment details (salary, allowance, deductions claimed, etc) accurately to your new employer. You can do it by submitting Form 12BB / Interim Form 16 to your new employer. Which will enable your new employer to calculate TDS accurately.

Need help with Calculating Accurate Taxes? Ask an Expert View Plan

FAQs

1. What to do if TDS is not properly deducted by an employer?

You need to ask your current employer to rectify the error, and deduct correct TDS on your total salary income. The other option is to pay the Advance Tax or Self Assessment Tax by yourself.

2. Can I file ITR-1 if I have switched jobs during the year?

Yes. You can file ITR-1. Make sure to consolidate the salary from both the employers before filing ITR.