Salaried taxpayers who have switched jobs must be particularly careful while filing their income tax returns, as switching jobs changes tax calculations at both companies - one that they are leaving, and the other that they are joining. According to The Times of India, the most common mistake employees make is failing to disclose details of salary income earned from their previous employer and the tax already deducted thereon to their new employer. In the absence of such information, the new employer generally computes tax only on the salary paid by it and may again allow the benefit of the basic exemption limit and lower tax slabs.
As reported by The Times of India, tax may be under-deducted during the year, leaving the employee liable to pay the shortfall at the time of filing the income tax return, along with interest where the net tax payable exceeds ₹10,000. The additional tax exposure can be significant where the employee has received taxable retirement benefits, such as gratuity or leave encashment, or has exercised employee stock options (ESOs) with the previous employer. These items may increase total income and push the employee into a higher tax bracket or surcharge category.
According to Tanu Gupta, Partner at Mainstay Tax Advisors LLP, cited by The Times of India, where salary income from a previous employer is ₹45 lakh and income from the new employer increases total annual income to ₹55 lakh, a surcharge may become applicable on the total tax liability. Since the previous employer would have deducted tax without considering the higher aggregate income, the employee may face a substantial tax outflow at the time of filing the return. Employees should ensure that salary income from both employers is correctly reported, TDS credits are reconciled with Form 26AS and AIS, and deductions are claimed within the prescribed limits.
As reported by The Times of India, a change in employment also provides an opportunity to reassess the choice of tax regime. Depending on individual circumstances, an employee may find the old tax regime more beneficial. Employee can choose now with new employer where he missed to make such choice with the previous employer. Particular care is required in respect of gratuity and leave encashment, as the exemption limits are cumulative and take into account exemptions claimed on earlier occasions while reporting exempt income.
