There was a time when people joined companies and worked there till retirement. Not any more. Job hopping is a norm now. Most people, however, don’t know how to manage the tax related issues when they change jobs.
Changing jobs often leads to a situation where an individual gets tax exemptions twice than what is due to him—from his earlier employer as well as from his new employer. Often the new employer does not take into account the income the person earned at his previous job.
This double benefit is not allowed. The income earned from the previous job has to be clubbed with the income from the new job to compute the total tax payable for the year. Not declaring your income from an earlier job would amount to tax evasion. To avoid this, provide your new employer the details of your previous salary.
Relocation to another city presents another dilemma for taxpayers. Many do not know whether to file their income tax returns at the earlier location or at the new destination. A taxpayer can file returns either in his permanent hometown or in the city where he works. However, in the present situation-which requires people to travel extensively-there may not be a permanent hometown. So, it is better to file at the new location.
To do so, write to the assessing officer in the Income Tax Department of your erstwhile area to transfer your income tax file to the new city. It is advisable to get your assessment proceedings completed before the file is transferred.
| Check List |
| Salary from previous and new employer are to be clubbed to compute income for the year |
| Give details of previous salary to new employer |
| Non-declaration of previous salary amounts to tax evasion |
| File return in your hometown or at the new location |
| Write to assessment officer to transfer file to new city |
| Conclude assessment work before file is transferred |
| Calculate your tax liability under the new break-up when changing a job |
Many people expect a big jump in income when they change jobs. But make sure you get the math right. Your package may be so structured that the take home salary does not rise in the same proportion as the gross salary. If the new break-up is not very tax friendly, it could lead to a lower take home salary. So, compute the tax outgo beforehand.
The Wrong Way
| Income from first job | 2,00,000 |
| Less investments u/s 80 C (till October) | 50,000 |
| Less tax free exemption | 1,00,000 |
| Taxable income | 50,000 |
| Tax paid | 5,000 |
| Income from second job | 2,50,000 |
| Less investments u/s 80 C (full year) | 1,00,000 |
| Less tax free exemption | 1,00,000 |
| Taxable income | 50,000 |
| Tax paid | 5,000 |
| Total (before cess, surcharge) | 10,000 |
The Right Way Income from first job 2,00,000 Income from second job 2,50,000 Consolidated income 4,50,000 Less investments u/s 80 C 1,00,000 Less tax free exemption 1,00,000 Taxable income 2,50,000 Tax (before cess, surcharge) 55,000
