Moved to a new city for work? Here is what it means for your taxes

Many taxpayers, who are otherwise prepared with all the necessary documents, have had to postpone key tasks due to the delay in releasing ITR utilities.

Relocating to a new city for a job can be an exciting yet overwhelming experience. New opportunities, new routines, and new surroundings await—but along with the logistical challenges and life changes, there's one more thing you should be thinking about: taxes.

Whether you're moving across state lines in the US or shifting between cities within India or elsewhere, a job-related relocation can have a significant impact on your tax situation. Understanding how your move affects your income tax liability, deductions, and compliance requirements will help you stay financially organised and avoid any unpleasant surprises during tax season.

1. Understanding the basics: Why moving affects your taxes

Tax systems across the world are structured based on residency and income sources. When you move for a job, several things change:

-Your place of residence
-The source of your income
-Your eligibility for certain deductions or exemptions
-Your tax reporting obligations in both the old and new location (if applicable)
-These changes can alter the way you file taxes, the tax rate applicable to you, and the paperwork you need to submit.

2. Key tax considerations when you move for work

A. Impact on residential status

In countries like India, your residential status for income tax purposes is determined by the number of days you spend in the country or a particular state. If you're moving within India but changing states, this may not affect central tax treatment but could affect state-level requirements like professional tax or social security benefits.

B. Location-based tax rates

Tax rates, slabs, and rules can vary by location. For example:

-In India, some states levy professional tax, while others do not.

-In the US, states like Texas and Florida have no state income tax, while California and New York have high income tax rates.

So, moving from a high-tax state to a low-tax state (or vice versa) will affect your take-home pay and tax planning.

C. Moving expenses – Are they deductible?

This is a common question—and the answer depends on where you live and what your tax laws say.

In India:  Relocation allowance is not taxable in India under Section 10(14) of the Income Tax Act, 1961. This means that the money received as a relocation allowance is not considered as part of the employee's salary income and is, therefore, not subject to tax.

In the US:  The Tax Cuts and Jobs Act of 2017 eliminated the deduction for moving expenses for most taxpayers until 2026. However, members of the armed forces may still be eligible for this deduction.

Always retain receipts and proofs of payments for relocation costs. Even if not deductible, they could be important for employer reimbursement or documentation.

3. What happens if you worked in two locations in one financial year?

This situation is common. If you earn income in two different locations during the same financial year:

-You may have to report income from both jobs, regardless of the location.
-You may need to file taxes in two jurisdictions (especially in the U.S., where state taxes apply).
-Ensure TDS (Tax Deducted at Source) or withholding tax has been appropriately adjusted in both places.

Indian example:

Suppose you worked in Delhi for 6 months and then moved to Bangalore. Your employer in Delhi deducted TDS for the first half. Your Bangalore employer also deducts TDS for the second half. You’ll need to consolidate Form 16s from both employers and file one ITR showing total income for the year.

A. HRA (House Rent Allowance)

House Rent Allowance (HRA) is a major tax-saving component, especially relevant when you move to a new city and start living in rented accommodation. If your employer provides HRA and you pay rent, you may be eligible for HRA exemption under Section 10(13A) of the Income Tax Act.

The HRA exemption is calculated as the least of the following:

1.      Actual HRA received

2.      50 percent of salary (basic + DA) if you live in a metropolitan city; 40 percent if in a non-metropolitan city

3.      Rent paid minus 10 percent of salary (basic + DA)

Metropolitan vs non-metropolitan cities

The Income Tax Act considers the following cities as metropolitan for HRA purposes:

-Delhi

- Mumbai

- Kolkata

- Chennai

All other cities are considered non-metropolitan.

Impact:

If you move from a non-metro (say Jaipur) to a metro city (say Mumbai), the eligible HRA exemption increases from 40 percent to 50 percent of salary—potentially giving you a larger deduction.

Example:

Assume your basic + DA is ₹50,000/month. You pay ₹20,000/month as rent.

If you're in Mumbai (metro):
50 percent of salary = ₹25,000
Rent paid – 10 percent of salary = ₹20,000 – ₹5,000 = ₹15,000
Least of HRA received, ₹25,000, and ₹15,000 is the exemption allowed.

If you're in Pune (non-metro):
40% of salary = ₹20,000
Rent paid – 10 percent of salary = ₹15,000
Again, the lowest of the three values would be the HRA exemption, possibly lower than that in a metro city.

Thus, relocating to a metro can increase your HRA deduction, helping you save more in taxes.

Ensure:

-Rent receipts are maintained
-Landlord PAN is quoted if rent exceeds ₹1 lakh annually

In countries like the US, there’s no direct tax break like HRA, but moving to a costlier or cheaper city may still influence your overall budget and taxable income after adjustments.

B. Update your address with the tax authorities

In India: Update your communication address on the income tax portal and bank accounts to ensure you receive notices or refunds without issues.

In the US: File Form 8822 with the IRS to update your mailing address.

5. How to stay tax-compliant after the move

-Collect all income documents from your previous and current employers.

-Keep track of Form 16s, pay slips, rent agreements, and any relocation expense receipts.

-Consult a tax advisor if you're unsure about how to declare income earned in multiple jurisdictions.

-Ensure your PAN/Aadhar (India) or Social Security Number (US) records are consistent with your new address and bank accounts.

6. Tips for smooth tax planning after a move

-Inform your new employer about previous income to avoid under- or over-deduction of TDS.

-Maintain continuity in investments (PPF, ELSS, SIPs) so your deductions remain valid.

-If you're eligible for double taxation relief (like under DTAA for NRIs), consult a CA or CPA to claim benefits.

-Check if your new city/state has any additional tax filing requirements—don’t assume all rules are the same.

Form 12B / 12BA – Important for multiple employers

When you switch jobs mid-year due to a move, it’s important to submit Form 12B to your new employer. This form contains details of your income, deductions, and TDS from your previous employer.

Form 12B: You need to submit it when you join a new employer during the same financial year.

Form 12BA: Issued by the employer, it details the perquisites, other benefits, and their valuation.

Submitting Form 12B ensures that your new employer deducts tax accurately, considering your previous salary and deductions. Failing to do so may lead to a tax mismatch and a large tax bill during return filing.

Final thoughts

Relocating for a job comes with several professional and personal adjustments—but don’t let taxes catch you off-guard. Being proactive about your tax obligations, documentation, and deduction opportunities ensures that the financial aspect of your move remains as smooth as possible.

A little preparation now can save you time, stress, and money later—so as you unpack your boxes and settle into your new role, make sure your tax strategy moves with you too.

The writer is MD at Neeraj Bhagat & Co.

Disclaimer: The views expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with tax experts before taking any decisions.