Changing jobs during the financial year could be a career choice. However, assessing the tax implication on account of working for two employers in a single fiscal year is advisable. Otherwise, this may lead to additional tax liability and interest at the time of filing tax returns. The additional tax liability could be on account of reasons such as basic exemption limit of Rs 2,50,000 being considered by both the employers, house property loss (capped at Rs 2,00,000 from financial year 2017-18) being considered by both the employers and medical insurance premium paid by employee and considered by both the employers.
These situations would lead to the employers withholding lower taxes through payroll. However, at the time of tax return filing, when the income is aggregated, there would be tax payable for the employee.
The income tax laws do provide a solution to this problem. Section 192(2) of the Income Tax Act, 1961 deals with situations where an individual is working with more than one employer or has changed from one employer to another in a financial year.
It provides that the employee may furnish the details of salary income, deductions availed and tax deducted in Form 12B to one of the employers (the employee can select any of the employers depending upon the circumstances of the case). Once Form 12B is submitted, the employer (to whom Form 12B is submitted) is obliged to deduct tax at source after considering information submitted by the employee. This will ensure there is no additional tax liability for the employee at time of filing the return.
Part A and B of Form 16
In the above situation, each of the employers shall issue Part A of the Form 16 (which contains details of taxes deducted and paid by the employer) pertaining to the period for which the employee was employed with each of them. Part B of the Form 16 (which contains details of income and various exemptions/ deduction availed) may be issued by each of the employers or the last employer at the option of the employee.
When one is leaving the job, the employee should seek a draft tax computation from the existing employer (final Form 16 would be available only after the end of the financial year). Based on the same, Form 12B needs to be filled in and submitted with the new employer who shall consider the same while deducting the taxes.
Before filing the return, one should download Form 26AS from e-filing portal. This form is an annual tax statement which contains details of income and taxes paid and deposited by the deductor. Employees should compare Form 26AS with the Form 16 issued by the employers. If there is any discrepancy, the respective employer needs to be informed for appropriate measures.
In the tax return, salary as well as TDS deducted by both the employers need to be reflected separately with appropriate TAN number of the employer so that return is processed without any additional tax liability. The income tax department can track all transactions through one’s PAN and hence if appropriate salary income from either of the employers is misreported, one can be sure to receive notices from tax authorities.
The writer, Aarti Raote is director, Deloitte Haskins and Sells LLP. With inputs from Vijay Bharech, manager, Deloitte Haskins and Sells LLP