Loading...

What if...I Change Jobs

Job hops often lead to confusion over filing of tax returns. Surya Bhatia of Asset Managers helps clear the air

By Surya Bhatia | Print Edition: December 28, 2006

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 job2,00,000 
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 job2,50,000 
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 job2,00,000 
 Income from second job2,50,000 
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


  • Print
  • COMMENT
BT-Story-Page-B.gif
A    A   A
close