People change jobs due to multiple reasons such as higher pay, better job role, change in exposure, etc. It’s common for people to switch jobs during the financial year, but this results in various tax consequences of switching jobs mid-year. Communicating your last drawn salary and deductions claimed can solve half of your problems.
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Tax 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 the salary paid by the previous employer and the TDS deduction. One needs to be careful while filling out 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.
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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 employers.
Example
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 the 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 employers is considered, Dinesh’s income falls under a 20% tax bracket.
- Double Deductions: Both employers considered the 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.
FAQs
You need to ask your current employer to rectify the error and deduct the correct TDS on your total salary income. The other option is to pay the Advance Tax or Self Assessment Tax by yourself.
Yes. You can file ITR-1. Further, make sure to consolidate the salary from both the employers before filing ITR.
Yes, you should declare your income from previous employment to the current employer. This will help the current employer to calculate tax on your total income for the year and deduct TDS accordingly. If you dont show the income the same will not get taxed, but you are violating the laws
Hi,
Yes, you should include both your Form 16s to file your ITR.
Here are the steps to file ITR with multiple Form-16s.
Hope this helps
Hi,
I changed jobs in March 2021 and was paid 9 days March salary from both my old and new employer. I paid tax for both the salaries with the old employer adding it to my Form 16. During my final settlement with my old employer in October 2021, I had to pay back this excess salary to my old employer.
Can I claim a tax refund for this recovered excess salary? If so how, in ITR 2021-22 or next year?
Hi @Amit_Patnaik,
You can claim a refund of the taxes paid on salary paid back to the employer while filing ITR. You have to reduce income by the amount you paid back. You should report only the net salary income while filing ITR for AY 2021-22.
Hope this helps
Thanks Divya, for your response!
Hi @abdabhi12
As per the income tax act, you are required to estimate the total income along with the variable component and pay advance tax accordingly every quarter.
If you miss out on estimating and paying the advance tax, then interest u/s. 234C shall be levied.
However, if you pay more tax then actual liability then you can claim refund for the same at the time of filing of your ITR.
Here’s a read on Section 234C : Advance Tax Penalty - Delay in Payment - Learn by Quicko
Hope this helps!
Hi @Abhishek_Durai_S_K
No, there is no such problem in this case. You should report the salary income from both form 16s and file your return as per the regime optimal for you.