Tax Impact of Changing Jobs During the Financial Year

This document covers

1. Impact of mid-year job change on Income Tax
2. Key Challenges that arise after a mid-year job change
   1. Incorrect TDS deduction
   2. Double claiming of tax benefits or deductions
   3. Double claiming of Section 87A rebate
   4. Possible Self-Assessment tax and Interest u/s 234 B,234C
3. What Should an Employee Do After Changing Jobs?
4. How EZTax helps when you change jobs mid-year?
5. Changed jobs during the year?

1. Impact of mid-year job change on Income Tax

• Income Tax is calculated on the total income of the taxpayer earned during the financial year, 01st April to 31st March and not separately for each employer.
• If the employee works with multiple employers during the financial year, the salary received from all employers needs to be considered for income tax preparation and filing.

2. Key Challenges that arise after a mid-year job change

When there is a mid-year job change, the following challenges can arise

1. Incorrect TDS deduction

• If the employee does not provide the previous employment details to the new employer, the new employer may not have information about the salary received and TDS deducted by the previous employer.
• As a result, the new employer may calculate TDS only on the salary paid by them, without considering the salary already received from the previous employer.
• This may lead to short deduction of TDS during the financial year. If there is a shortfall in TDS, the employee may have to pay the additional tax while filing the ITR

2. Double claiming of tax benefits or deductions

When an employee changes job, both employers will calculate tax separately and provide the deductions separately.

For example,

• Standard deduction – Rs 75000/50000 under new tax regime /old tax regime might be applied individually by each employer
• Chapter VIA deductions like 80C, 80D, home loan etc might be considered by both employers

However the above deductions are not available twice merely because of change of employment. The above deductions are available only once per year

3. Double claiming of Section 87A rebate

If an employee changes jobs during the year and the salary from each employer is below ₹12 lakh, each employer may consider rebate u/s 87A while calculating TDS. This results in non-deduction of TDS and leads to a higher tax liability while filing the income tax return.

4. Possible Self-Assessment tax and Interest u/s 234 B,234C

• If the total TDS deducted by the employers is less than actual tax liability, the employee is required to pay balance tax as self-assessment tax at the time of filing income tax returns
• Also if the employee does not pay advance tax, he is required to pay interest for late payment of taxes

3. What Should an Employee Do After Changing Jobs?

After changing jobs during the financial year, an employee needs to take a few important steps

1. Provide previous employment details to the new employer: The employee needs to submit the details of previous employment i.e., salary, tds , deductions etc to new employer. Once these details are submitted, the new employer will calculate TDS on the combined income.
2. Collect Full and Final Settlement /payslips/ Form 16 from the Previous Employer: It will help in preparation and filing of ITR. Full and Final settlement is important because it will have components like gratuity, leave encashment etc and some of these are tax exempted
3. Ensure Correct TDS Deduction by the New Employer: After providing the previous employment details, the employee should verify that the new employer has appropriately considered the relevant information while calculating TDS.
   This helps ensure that sufficient TDS is deducted on the overall salary income for the financial year and reduces the possibility of a large tax liability at the time of filing the ITR.
4. Assess the Advance tax payable before March to avoid interest: If the TDS deducted by the employers is not sufficient to cover the estimated tax liability, the employee should assess the advance tax payable before March and pay the applicable amount within the prescribed due date. This can help avoid or reduce interest liability under Sections 234B and 234C, wherever applicable.

4. How EZTax helps when you change jobs mid-year?

Changing jobs can make tax filing complicated when you have multiple Form 16s, different TDS calculations and deductions.

With EZTax, you can:

• Upload multiple Form 16s and consolidate salary and TDS details.
• Reconcile AIS and TDS to identify discrepancies before filing.
• Check deductions and tax benefits to avoid duplicate claims.
• Compare tax regimes and choose the more beneficial option.
• Calculate your final tax liability and identify any additional tax payable or refund.

5. Changed jobs during the year?