By Sreenivasulu Reddy, Senior Tax Professional, People Advisory Services, EY India
Have you changed a job during the year? If so, apart from other things related to your career, you also need to consider the tax impact on changing the job. As the obligation to prepare & file the tax return and disclose the accurate information rests on the employee, one should take due care while preparing the tax return in such instances. Considering that the due date for filing the tax return for the financial year 2015-16 is fast approaching, here are the few important things you need to consider while filing the tax return.
Change in tax slabs and Impact of multiple Form 16s
The tax liability of an individual is calculated on the basis of the salary paid by the employer during a financial year. If you change a job during the year and do not inform your new employer about the previous income, there will be additional tax liability while filing your tax return. The reason for additional tax liability could be due to the basic exemption limit of Rs 2,50,000 considered by both the employers. Also, both the employers would have considered the lower tax slabs while calculating the tax liability.
Ideally, when an employee changes his employment and joins a new employer, he/ she has to declare the previous salary details to the new employer in the prescribed form. The new employer is required to consider this information and deduct appropriate taxes. After the end of the tax year, new employer would issue a consolidated Form 16 including the previous employment Salary and TDS details.
You can file your tax return based on the Form 16 issued by the new employer, but ensure that your previous employment details are reflected appropriately in the tax return.
In case you have not furnished your previous employment details to the new employer, you need to consider both the Form 16s for preparing and filing your tax return. You might end up paying Self-Assessment tax if the exemption limit has been considered by both your previous employer as well as the new employer. While remitting the tax, use appropriate tax challan and select the right assessment year (for tax year 2015-16, the assessment year 2016-17).
Avoid claiming deductions/ exemptions twice
An important thing to consider when you are changing jobs in the middle of the year is to make sure that deductions/ exemptions have been claimed only once. The relevant proof needs to be maintained in case of future enquiry by the tax department.
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Selection of appropriate Income Tax Return (ITR) Form
There are various ITR forms released every year by the Tax Department. Based on the types of income earned during the year, one should choose an appropriate ITR form. In case you were employed with more than one employer during the year, the details in respect of total salaries from various employers needs to be appropriately furnished in the respective schedule. Also, the TDS deducted by the employers should be mentioned in the TDS Schedule with the correct TAN details of the employers.
Verifying/ Reviewing Form 26AS
Form 26AS is a consolidated annual tax statement which contains details of the taxes paid and deposited with the Indian Revenue Authorities on one’s behalf by the respective deductor. Hence, it is important to review the said Form to ensure details regarding income & taxes are reflecting correctly and the same is considered while filing the tax return.
In case of any discrepancy in the details provided in Form 16 vis-à-vis Form 26AS, the respective employer needs to be informed so that corrective measures can be undertaken for rectification.
Reporting of personal income
In case you have reported any personal income (like bank interest income, interest on Fixed deposits, rental income etc.) to your employer, the same is required to be considered by your employer and deduct the appropriate tax. While reporting your personal income in the tax return, you need to ensure that the tax deducted details are reflecting appropriately in Form 26AS.
Reporting of Exempt Income
One should ensure that the exempt income received from the previous employer is appropriately disclosed in the tax return form. For example, withdrawal of provident fund, gratuity etc.
New Disclosure Requirement
A new schedule has been inserted by the Indian Revenue Authorities in the ITR form ‘Assets & Liabilities Schedule’ applicable in case where total income exceeds Rs 50,00,000 during the tax year 2015-16. Hence, one need to carefully examine the income details and make proper disclosure in the said schedule if the income from all sources exceeds the specified limit.
Foreign Asset Reporting
In case you have switched your employment from a foreign country to India and you qualify as a ‘Resident and Ordinarily Resident’ during the respective financial year, you should ensure proper reporting of foreign assets (like foreign bank account, Immovable properties, financial interest etc.) in the ITR form to avoid any consequences under the Black Money Act.
So, choose your ITR form wisely and declare/disclose the correct/ required information and stay worry free. Thus, changing a job could be exciting in terms of better prospects but one should also consider the associated tax impact and make appropriate disclosures in the tax return in order to avoid surprises from the tax department.
(With Inputs from Garima Agrawal. Views expressed are personal)