Income Tax things to know before switching job in mid of year

Tax precautions while switching job in mid of year

Tax precautions while switching job: People frequently change jobs for many kinds of reasons, including better pay, better job roles, increased exposure, etc. People frequently change jobs in the middle of the fiscal year, but doing this includes various kinds of tax consequences. Half of your problems can be resolved by communicating your last drawn salary and any deductions that were made.

Declare your income from the previous employer

TDS will be calculated by your current employer using the salaries you received from him during the fiscal year. There are a few critical things that can go wrong with your income tax return (ITR) if your current employer is unaware of your previous salary income.

Wrong consideration of 80C deductions.
Double calculation of exemption limit of ₹2.5 lakh.
Application of incorrect tax slabs.

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Higher tax bracket due to switching jobs

Always check if the new job is putting you in a higher tax bracket. Let’s assume that you are currently in the 20% tax bracket and earning a taxable salary of INR 7,50,000. Additionally, following your job change, your taxable salary income is INR 10,65,000, placing you in the 30% tax bracket. This might result in a significantly higher tax expense. You must inform your employer of this and ask them to appropriately deduct your TDS.

Don’t forget investments and expenses

Apart from salary income, don’t forget to disclose and declare rent details, income from property, medical expenses and Section 80C investments and 80D deductions.

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Furnishing Form 12BB with the previous salary details

The new employer will require you to submit Form 12BB once you start working for them. which also contains information about the TDS deduction and the salary information provided by the prior employer. One must be careful when completing Form 12BB because it will serve as the foundation for your employer’s TDS deductions in the final month of the fiscal year.

Avoid claiming Deductions twice

Use tax exemptions and deductions only once. By giving Form 12BB to your new employer, you can stay out of this predicament. Just make sure you only deduct the expenses that you did not deduct during your prior employment.

You may need to determine whether you owe any Advance Tax or Self-Assessment Tax if you were unable to submit Form 12BB. You may end up owing tax and an interest penalty if your new employer does not account for the TDS and deductions that your previous employer claimed. In that case, even after both employers have deducted TDS, you will still owe tax.

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Take a copy of Form 16 from the previous employer

Take a copy of Form 16 from your previous employer, don’t forget to do so. You will receive an interim Form 16 from your former employer, which will include information on the salary paid and TDS withheld from your pay, even though Form 16 is only available after the end of the financial year. You can use this to fill out Form 12BB, which you must give to your new employer.

Follow these steps if you have more than one Form 16s in a financial year:

Add salary earned from both the employers.
Deduct exemptions such as HRA, travel allowance, etc.
Claim deductions under Section 80C, 80D and 80G
Cross-check TDS deducted by both employers on Form 16 using Form 26AS on the Incometaxindia.gov.in website.