Switching jobs? Don't forget these critical financial tasks

It's essential to obtain a Form 16 from each employer when changing jobs for that year.

A new job can mean new financial opportunities but it also requires careful financial planning. From updating your tax withholdings to managing your employee benefits, here are the critical personal finance matters to address.

When switching jobs, it's essential to update your new employer about your previous salary and tax deductions. Failing to do so may result in a tax liability, including penal interest, when filing your tax returns.

To avoid this, ensure you take care of a few important tasks. Submit investment proofs to both your old and new employers, and obtain Form 16 from both. Additionally, share your correct Employee Provident Fund (EPF) details with your new employer. It's also crucial to enquire about the company's health insurance policy, including coverage and beneficiaries, and plan your personal health cover accordingly.

Finally, consider using your salary increase to improve your financial situation. Use the opportunity to pre-pay high-interest loans, and allocate a portion of your increased income for investments.

Update your new employer to ensure the correct TDS

When switching jobs, it's crucial to inform your new employer about your income from your previous job. This includes details such as your previous salary, deductions claimed, and tax deducted at source (TDS). This information will help your new employer deduct the correct TDS from your salary.

To provide this information, you can fill and submit Form 12B to your new employer, especially if you've changed jobs mid-year. This form, available on the Income Tax Department website, requires details like employment period, salary earned, Section 80C deductions, and TDS deducted at your previous job. Alternatively, you can simply share your salary slips or tax computation from your previous employer with your new employer via email.

Investment proofs and Form 16

It's essential to obtain a Form 16 from each employer when changing jobs for that year. These forms will be necessary when filing your tax return. To avoid potential issues, it's recommended that individuals with job changes file their tax returns promptly. This is because combining salaries from two jobs can result in tax dues, and having two Form 16s can lead to questions during the return filing process. Additionally, submit your investment proofs to both employers, ensuring that either employer can provide them to the I-T department if required.

Take care of your health

It's crucial to review your insurance coverage. Analyse your new employer's corporate health insurance policy to determine who is covered, including spouses, children, and parents. It's essential to clarify these details even before accepting the job offer, as you'll lose your previous employer's health cover once you quit.

If your new employer provides health insurance, opt for the maximum coverage available, which is often more comprehensive and cost-effective. Typically, companies offer coverage ranging from Rs 2 lakh to Rs 5 lakh, with the option to top up by Rs 5 lakh to Rs 10 lakh. Once you've exhausted this limit, consider purchasing a personal top-up plan to meet your remaining health insurance needs.

If your new employer doesn't offer health insurance, you'll need to adjust your existing coverage. For instance, if you had Rs 2 lakh corporate cover and Rs 8 lakh personal health cover with a deductible of Rs 2 lakh, you can convert the deductible to nil (at an additional premium) to maintain your overall health cover of Rs 10 lakh.

Dealing with employee provident fund

It's essential to manage your employee provident fund (EPF) account wisely. Avoid withdrawing money from your EPF account, as this will deplete your retirement savings. Instead, consider preserving your existing EPF account and linking it to your new employment.

To do this, provide your existing EPF account number and Universal Account Number (UAN) to your new employer. This will enable them to create a new PF account linked to the same UAN, rather than generating a new UAN. This approach simplifies tracking and managing your EPF investments, making it easier for you and your family to keep tabs on your retirement savings.

Also read | How EPFO pays out pension to family members of the deceased

Prepay your home loan, pay off other debts

A new job often brings a salary increase, providing an opportunity to strengthen your finances. Consider using the pay hike to create an emergency fund, if you don't already have one, by setting up a recurring deposit. Next, focus on eliminating high-cost debt by quickly paying off credit card dues. Then, prioritise paying off personal loans, followed by prepaying your home loan, to optimise your debt management strategy.

Top up your investments

With your emergency fund and debt management in order, you can now focus on investing for the future. If you're new to equity investing, consider setting aside a portion of your income for systematic investment plans (SIPs) in a few carefully selected equity funds. Alternatively, if you already have existing equity funds, you may want to increase your SIP contributions for long-term growth.

You can also explore contributing to the Voluntary Provident Fund (VPF), which offers tax-free returns. To take advantage of this option, inquire with your new organisation about the process and any relevant details.