Shifting jobs mid-year? Be sure to fulfill tax obligations
While a change in jobs has various consequences in terms of the change for their working life and career, there is also an impact that will be witnessed on the tax front.
April 13, 2012 / 17:04 IST
Arnav Pandya
There are often occasions when an individual changes their job in the course of the year. While this has various consequences in terms of the change for their working life and career there is also an impact that will be witnessed on the tax front. A rise in the salary will lead to a higher tax liability but what is also important is the manner in which the transition between the two employers is completed. This will ensure that some short term reduction in tax does not end up with a large liability at a later stage. Actual situationThe initial employer with whom the individual was working at the start of the financial year would have called for the investment declaration in the first month of the financial year. Based on the details supplied here and the income that is earned by the employee there will be a certain tax that will be deducted by them for the time period that the person is in employment with the entity. The situation then changes as the employee shifts to a second employer after a few months during the financial year. The second employer will also need to undertake the tax deduction based upon the income that the employee is earning. However it is also vital that the income earned for the entire year is considered for this purpose rather than looking at each of the employers individually as the employee has to file a single income tax return with the composite income at the end of the year.RequirementThe second employer in many cases would ask the new employee to get the details of the income earned during the initial part of the financial year and then submit this to them so that the proper tax deduction can be done. There is a separate form in which the details here can be supplied and the responsibility is upon the employee to submit these details. If they do not do so then the employer will deduct tax as if the income earned with them is the only income that the employee has earned. There are many reasons why the employee would not like to give the previous income details to the new employer but this can result in a bit of a problem on the tax front for them at a later date.RiskThe biggest risk that this type of situation can lead to is that some of the benefits are considered by both the employers and this actually leads to a situation where there is a tax liability that remains to be paid. For example if there is no correct information given to the employers then each of them could consider the basic exemption limit of Rs 2 lakh that is available to the individual which means no amount of tax on actually Rs 4 lakh. Further if there is an investment declaration given to both the employers then too there will be a double benefit counted again. While the employee may feel pleased about this situation as it leads to a lower deduction of tax during the year this will come at a cost to them.The real situation will reveal itself at the time of the filing of the return when these double benefits will have to be eliminated. This will result in a calculation where there is a large amount of tax that will have to be paid. The problem for the employee will increase due to the fact that there would be a situation where the tax to be paid crosses the Rs 10,000 mark which is likely in most circumstances. The end result here is that the advance tax limits are breached. This will give rise to a requirement of calculating interest and the bill for this will have already started ticking a long time ago since the return filing process will be done only in the next financial year. When this is the case then the individual employee will find themselves staring at a large tax liability that will have to be paid.The author can be reached at arnavpandya@hotmail.com Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
