Everyone wants to become better than yesterday and progress in life. Hence, a job change is one of the most sought-after growth mediums for salaried individuals, aspiring to advance in their careers. While a shift in profession offers multiple advantages, it also has its setbacks. The most common of them is the tax implications.
When you file your Income Tax Returns (ITR) for a financial year, you disclose all sources of income and the taxes paid. The Income Tax Department is also aware of all the investments you make in a year. So, in case of a job change, your tax return process is also affected.
Common problems people face with tax returns after job change:
Lower TDS deduction: The most significant problem while filing tax returns after a job shift is the TDS aspect. At the time of salary calculation, the employer estimates your salary for the year, while adjusting the tax deducted at source (TDS). So, when you join a new organisation, the new employer also calculates your salary and accounts for the TDS. In this process, both companies make the basic exemption under the prevalent tax slab. This leads to a lower value of TDS, which in turn, becomes a problem when you file tax returns after a job change year. At the time of ITR, you will need to pay self-assessment tax in addition to the interest.
The best way to avoid this complication in ITR filing is to declare the ‘income from the previous employer’, truthfully. This will comprise total income and tax deductions.
Double accounting for standard and Chapter VIA exemptions: Similar to the miscalculation of TDS, in the point above, a change in a job also causes issues in the computation of deductions during filing of tax returns. When you change your workplace, your new employer also grants you exemptions on your investments made under Section 80C, 80D, 80CCC, 80E and more. These deductions have already been included in your old job. Hence, this leads to a double allowance of exclusions.
The ideal way to evade this issue at the time of ITR filing is to declare the ‘income from the previous employer, including all taxes paid and investments made.
Multiple Form 16s: Form 16 is a type of certificate issued by the employer to the employees. The form validates deduction of TDS. Moreover, it also includes details of your salary, allowances under Section 10 and deductions made under chapter VI A, 80C, 80CCC, 80CCD, 80D, 80E, 80G, 80TTA, and relief under section 89. When you change your job, especially if it is in the middle of the year, you might face complications in filing tax returns for the specific year. You would need to get Form 16 from both your employers and the process can be quite tedious.
A discrepancy in Form 26AS: Form 26AS is like your annual statement, which comprises of details of tax deduction made against your PAN. So, when you switch a company, you will have two Form 16 and tax deduction at two sources, which will be mentioned in Form 26AS. With multiple entries from two different employers, there are high chances of error in Form 26AS. Hence, when filing tax returns for the year, you changed your job, be sure to check for any mistakes or discrepancies in Form 26AS. Failure to do so can cause an inquiry from the Income Tax Department.
Overall, in case of a job change, file your taxes with prudence or seek help from professional tax advisors to avoid any complications.
You can also check out the YES Tax Solutions from YES BANK for guides and videos to help with your tax planning and tax payment.