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People change jobs these days, unlike days of our parents when people joined companies and worked there till retirement. Changing jobs often leads to a situation where an individual gets tax exemptions twice from his earlier employer as well as from his new employer. Exemptions and Tax Liability form an important consideration while switching jobs. Making a job switch in the middle of the year involves making sure that the deductions and exemptions regarding tax liability are made only once.  We shall explain how basic exemption is accounted by two employers, correct way to calculate tax when one switches jobs, how Form 26AS will have multiple entries, how Form 12B may be used to declare income from previous employer.

Calculation of Tax Liability by both the employers on Switching Job

Most employers would be computing employees’ tax liability after taking into consideration the basic exemption limit and also the exemption availed under Section 80C.  Basic exemption limit is an amount that is applicable to a financial year up to which an individual will not be liable to income tax. In  financial year 2013-2014  or assessment  year 2014-2015, upto 60 years of age, it is Rs 2 lakh. As long as there is one employer it is okay. But when one switches job then there is a possibility that your previous employer and present employer may give you the exemption twice for the same financial year(if there is only one job hop). Let’s see it with an example. Our article Income Tax rates Since AY 1992-1993 covers Income tax slabs, basic exemptions since AY 1992-93.  Our Income Tax calculator can be used to calculate income tax

Suppose Anshuman worked in a company  where his annual income was 6 lakh. He told the company that he will be investing 50,000 to save taxes.  But he worked till Oct 2013. So His first employer will calculate his tax liability by deducting basic exemption limit and his tax saving from his taxable income.

Income from first job (full year)

6,00,000

Investments under section 80 C

50,000

Taxable income

5,50,000

Less tax free exemption

2,00,000

Tax to be calculated on income

3,50,000

Tax (for full year)

41,200

Monthly Tax

3433.33(41,200/12)

TDS paid by company(till Oct)

21,100(41,200/12 *6)

Tax calculated by second employer on annual salary of 8 lakh for 6 months only. He does include his income from the first year. He again takes care of investments under section 80C and basic exemptions

Income from second job (half year)

4,00,000

Investments under section 80 C

50,000

Taxable income

3,50,000

Less tax free exemption

2,00,000

Tax to be calculated on income

1,50,000

Tax (for full year)

15,000

Monthly Tax

1250(15,000/12)

TDS paid by company(from Nov)

7,500(15,000/12 *6)

So Anshuman has paid tax of  28,600 (21,100 + 7,500) on his income of 7 lakh (3 lakh + 4 lakh)

Correct way to calculate his tax liability is as follows, which uses Basic Exemption only once

Income from first job

3,00,000

Income from second job

4,00,000

Investments under section 80C

50,000

Tax free exemption

2,00,000

Taxable income

6,50,000

Tax liability

60000

Total (before cess, surcharge)

10,000

  • So instead of Rs 60,000 of tax to be paid ,as TDS, on salary of Ansuhuman only 28,600 was paid.
  • The other thing that made Anshuman happy on switching jobs was that his tax-home pay shot up. But it was short-lived happiness. In May his salary for month of Apr was less than in March.  Because his tax was calculated based on income from full year and hence TDS increased and so his take home decreased.
  • When he files his income tax return for the FY 2013-14 he would have to pay TDS he owes also interest on the tax due as he is liable to pay advance tax. Our article  Advance Tax covers when is Advance tax due and how to calculate it in detail.

How would the Government know that I have switched job?

All tax deducted against your PAN number is recorded. The employer submits(or is supposed to submit) TDS to Government So when you change jobs the partA of  Form 26AS has multiple entries as shown in excerpt from image below. There are 2 deductors with their TAN and information on tax deducted. To know more about structure of Form 26AS you can read our article Understanding Form 26AS and What to Verify in Form 26AS? Click on image to enlarge

Multiple Employers in Form 26AS

Multiple Employers in Form 26AS

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.   Every time you change jobs, you become a potential tax evader. This is because unless you expressly declare it, most companies will assume that you didn’t have any income in the previous months. As in Anshumal’s case, they are likely to deduct tax only for the income earned for the remaining months of the financial year. Ignore this at your peril because underreporting your income is a serious offenceThe onus is on the taxpayer because all the facts relating to his income are known to him.  So how can

Form 12B

When a new employee joins the company, he may give the particulars of income from his earlier employment by filling Form 12B which has following details

  • Details of your previous employer like his PAN No., TAN Number, Period of employment
  • Break up of Salary like Basic Salary + DA, Perquisites, House Rent Allowance, Leave Encashment, Leave Travel Allowance etc.
  • Deduction with respect to Provident Fund and Particulars of value of perquisites  such as Rent free accommodation(if any)
  • Deductions if any under Section 80C, Section 80G, Section 80E, Section 80D, Section 24
  • TDS on Salary deducted by the previous employer (enclose certificate issued under section 203)
  • Professional Tax (if any) paid by the employer

These details in Form 12B are required to be furnished based on the Salary Slip and the Form 16 issued to you by your previous employer. Form 12B is required to be furnished even if no TDS was deducted by your previous employer because the salary was less than the basic exemption limit as per the Income Tax Slabs. It is quite possible that after combining your current and previous salary, your total salary is chargeable to tax. An extract of the specimen copy of Form 12B is enclosed herewith and the full copy can be viewed at http://law.incometaxindia.gov.in/DITTaxmann/IncomeTaxRules/pdf/itr62Form12B.pdf

Form 12B shall be verified and signed by the employee and based on these details furnished by the new employee, the employer issued a Consolidated Form 16 at the end of the year.

Image of Form 12B(pdf) from incometaxindia.gov.in website is given below.(Click to enlarge)

Form 12B on changing jobs

Form 12B

For an employee joining in the middle of a FY, is it the responsibility of employer to ask for salary details of previous employment? 

According to section 192(2), where an assessee is employed under more than one employer or has held successive employment under more than one employer, he MAY furnish to the person responsible for making the payment , which may be any one of the employers as the assessee may choose – such details of his income under the head salaries received from the other employer or employers.it is the option / discretion of the employee whether or not to file Form No 12B. The current employer can’t insist on filing of Form No 12B. If the employee chooses not to file, then employers’ obligation is limited to compute TDS on salary payable by him.

If Form 12B is filed, then current employer can deduct the TDS on salary paid by previous employer (incase no TDS was deducted by previous employer). And if the TDS was deducted by previous employer, any excess or shortfall can also be adjusted.

If the details are so furnished in the prescribed form, the person responsible for making the payment SHALL take it into account for deducting tax at source.

The usage of  MAY  and SHALL shows that the employee has the option of furnishing the said particulars. It is, therefore, not mandatory to provide the details of the previous employment to the new employer in Form 12B.

It is always in the interest of an employee to furnish such details because otherwise there can be duplication of exemptions and deductions and there can be a shortfall in tax deduction and as a result the employee would become liable to deposit advance tax.

Who’s responsible for filling up the Form 12B: My previous employer or me?

It is the responsibility of the employee to fill the declaration in Form No 12B and also attach Form 16, if any, issued by your previous employer. It is required to be filled up even if there was no TDS deducted by your previous employer due to the salary being less than the basic exemption limit. It is quite possible that after combining your current and previous salary, your total salary income exceeds the maximum amount not chargeable to tax.

How to fill Form No. 12B for giving it to my current employer so that income (and tax already deducted thereon, if any) from my previous employment can be considered for the purpose of TDS from my current salary income?

Fill up Form 12B based on the Form 16 (if you have) or on the basis of salary certificate (if you don’t have Form16) issued by your previous employer. You can also take the help of your salary slips. In case of any difficulty, you can take guidance from your previous or current employer.

Can my current employer still refuse to deduct TDS on my previous salary once I submit Form 12B?

Ans: No, once you submit Form 12B, it becomes the obligation of the employer to deduct TDS on your consolidated salary after accounting for TDS deducted (if any) by your previous employer.

Is Form 12B the same as Form 12BA?

Not at all. Form 12BA is a statement showing particulars of perquisites and fringe benefits, if any. It is issued every year by your employer along with Form16. Our article Understanding Form 12BA covers Form 12BA in detail.

What if I have submitted all my investment proofs and rent receipts to the earlier organisation?

You need to fill Form 12B, verify it and submit to your new employer. Your ex-employer does not have to enter the picture.You can use the salary slips from your ex-employer. So you have the option either of obtaining Form 16 from your ex-employer or submitting Form 12B.

If you cannot produce Form 16 or Form 12B, you have to re-submit the proofs of the investment if your new employer insists on it.

This will be valid only if your previous employer did not take the investments into consideration. That is, he has not already calculated your tax consideration.

What if I don’t fill Form 12B?

Then the new employer will not take account of tax liability of previous employer. You then would have two Form 16. It becomes your responsibility to take both the forms and compute  taxes as shown in Right way to calculate. This may result in some tax payable, which can be deposited as self-assessment tax, along with interest as applicable. Our article Paying Income Tax : Challan 280 talks of how to pay the tax using Challan 280. Our article How to Fill ITR when you have multiple Form 16 explains how to fill Income Tax return when you hav multiple Form 16.

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When you change the jobs, be aware of tax liability that may arise. Make sure that basic exemption, deductions etc are not taken into account more than once. If possible fill Form 12B. If not then you might end up with multiple Form 16. You can take both the forms and compute the taxes by applying the slab benefits to the total income. This may result in some tax payable, which can be deposited as self-assessment tax, along with interest as applicable. Did you fill Form 12B when you changed your job? How did you take care of tax liability when you changed your jobs

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