Job change can impact your income tax liability

Software professional Anand Singh panicked when his chartered accountant informed him of a tax liability of Rs 1.85,000 for 2013-14.

Reason: Singh changed his job last year and both employers gave him section 80C benefits and took into account basic exemption.

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Singh’s net pay was Rs 9.50,000 with his previous employer. The employer deducted tax at source (TDS), considering the Section 80C benefit of Rs 1,00,000. Annual taxable income = Rs 8.50,000.

Hence, his annual tax payable stands at Rs 1,00,000. 

Singh moved to a new company in August 2013, where he took home Rs 13,00,000.

This employer also gave Section 80C benefits. 

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Annual taxable income was Rs 12,00,000. Hence, annual tax payable stood at Rs 1,90,000.

And, he paid a total of Rs 2,90,000 as tax. But when his total annual income (Rs 9.50,000 + Rs 13,00,000) was taken into account, less Section 80C deduction, his tax liability increased to Rs 5,05,000.

Now he needs to pay another Rs 1,85,000.

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However, many of those who change jobs in a year do no realise that the TDS deducted from their salary is lower than what it should be.

They realise it only when they compute taxes at the time of filing returns.

That is, the taxes paid as TDS has fallen short of the actual payable.

This shortfall is payable before filing the returns.

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“Since he availed tax benefits from both employers, there has to be an outstanding due at the time of filing tax returns.

Hence, especially those shifting jobs could opt for advance tax,” says Gautam Nayak, partner at CNK and Associates LLP.

Typically, those whose annual tax liability is more than Rs 10,000 should pay by way of advance tax.

Individual taxpayers need to pay advance tax in three instalments through the year — 30 per cent of the outstanding liability should be paid by September 15, another 30 per cent or 60 per cent of the total liability should be paid by December 15 and the remaining (or the entire liability) amount should be cleared by March 15.

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And, if advance tax is not paid on time, then such taxpayers are levied an interest penalty under Section 234 C and 234 B, says Mayur Shah, executive director - tax & regulatory services at EY. Section 234C levies interest penalty at one per cent a month for delay in advance tax payment.

For instance, if one has an advance tax liability of Rs 9,000 by September, but he pays only Rs 5,000.

He will be charged one per cent interest till September.

Same is the case if he defers the liability for the December instalment or March instalment. 

Singh will have to pay interest, too.

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“One can finish off the advance tax payment even between March 15 and 31.

But if it is delayed further, then it will be considered to be default in advance tax payment and there will be one per cent a month interest levied from April of next financial year,” adds Shah.

However, Vaibhav Sankla, director at tax consultancy firm H&R Block feels the easier way out is to provide the new employer with the Tax Computation Statement from the previous employer. 

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“Since employers can't furnish Form 16 in the middle of the year, they give Tax Computation Statement."

"It shows computation till the day the employee worked with them. "

"This is a better idea than taking the advance tax route because if one changes jobs in December or January then they would have missed two advance tax instalments. And will need to pay a penalty,” he explains.