By Parizad Sirwalla
Tax returns filing can be complex in case you have changed your job and have worked with more than one employer during a financial year (FY). In this article, we have listed a few important aspects you need to be cognisant of while filing a tax return in such a scenario.
Include salary income from all employers
After the end of relevant FY, you should collect a Form 16 and 12BA (annual tax deduction certificate) from each employer and verify the details of the gross salary paid and the Taxes Deducted at Source (‘TDS’) thereon respectively. In case you have not informed your new employer about the salary income paid by the previous employer (including TDS thereon) and your eligible tax-saving investments, there could be an additional tax liability. This liability could arise due to the tax slab benefit being provided by both the employers in the TDS calculation by each of them. In other words, both the employers may have considered the basic exemption limit of Rs 2.5 lakh and progressive tax slab rates while deducting TDS on the respective salary being paid by them. If there is a shortfall in the payment of TDS, you should discharge the additional tax liability by way of self-assessment tax (with applicable interest for the delay in the payment of taxes) before filing the tax return.
An employee can also file his/her tax return based on the consolidated Form 16 issued by the new/ current employer in case he/she has informed the salary details of the previous employer to the new employer in the Form 12B. In that case, the new employer is required to deduct TDS on the salary paid by him after duly taking into consideration such details and issue a consolidated Form 16.
Taxability of notice pay
If you have not served your notice period in full, the previous employer may have recovered a notice pay from your full and final settlement depending upon the company’s policy and the terms of your employment agreement. There are conflicting judicial precedents in respect of the taxability of the actual salary received (net of recovery of the contractual notice period pay) vis-à-vis the taxability of the salary on the due/gross basis. This becomes relevant as the Income-tax Act, 1961 (the Act) does not explicitly provide for a deduction of notice pay from the taxable salary income. Thus, it is pertinent to analyse the taxability of the recovery of notice pay by your previous employer vis-à-vis terms of your employment before filing the tax return.
Taxability of leave encashment
As per the provisions of section 10(10AA) of the Act, leave encashment received by an employee at the time of retirement or superannuation or otherwise is exempt from income tax. There are divergent views on how the word ‘otherwise’ should be interpreted vis-à-vis resignation from service by an employee. Therefore, if you have cashed your earned leaves (after adjustment with your notice period) at the time of leaving the previous employer, you should analyse whether your employer has taxed it or considered it exempt. In case it has been considered taxable by the employer, you may have the ability to claim an exemption while filing the tax return subject to the provisions and limits prescribed in the said section.
Verify TDS with Form 26AS
It is important that you verify that TDS deducted by all the employers is being appropriately reported in Form 26AS – an online annual tax credit statement downloadable from tax department’s e-filing portal. Any discrepancy in the details of TDS should be notified to the respective employer so that the necessary correction can be done. In case any discrepancy is not resolved, the tax return is not likely to be processed by the tax department appropriately and you may receive an intimation either for balance tax payable (to the extent of the shortfall in taxes) or refund not being granted.
Income-tax return form
The due date to file a tax return for FY 2016-17 is 31 July 2017 for individuals not required to have their books of account audited under the Act. As a salaried individual, the relevant tax return forms notified for FY 2016-17 are:
# ITR-1 or Sahaj: This form to be used in case you have salary income, pension income, income from one house property and income from other sources (other than a lottery). This form cannot be used if any losses are to be carried forward or have total income exceeding Rs 50 lakh, foreign assets, income from business or profession and capital gains
# ITR-2: This form is applicable in case of salary income, pension income, income from more than one house property, capital gains, income from other sources, income as a partner in a firm, foreign assets and foreign tax relief to be claimed. This form cannot be used by those having income from proprietary business or profession.
Besides taking cognisance of the aforesaid tax rules, it is important that you also adhere to other applicable requirements while filing your tax return like disclosure obligations such as the details of all Indian bank accounts, details of specified assets and corresponding liabilities in case your total income exceeds Rs 50 lakh, reporting of foreign assets in case of you are resident and ordinarily resident, etc,. Further, if there are any exempt payments made at the time of leaving the employment (e.g. gratuity, PF etc.), the same should be appropriately disclosed in the tax return form.
Other aspects to be complied with would be mandatory quoting of an Aadhaar number (except for foreign citizens, individuals above 80 years of age, non-residents and individuals staying in certain specified states), validation of acknowledgement (Form ITR-V) of the return e-filed, etc.
(The author is Partner and Head, Global Mobility Services, Tax, KPMG in India)