Switching professions mid-year? Here's how to dodge a hefty tax bill surprise
In the world of employment, changing jobs in the middle of the year can come with its own set of challenges, especially when it comes to taxes. One such challenge is the risk of double tax deductions, a situation that can lead to a large one-time tax payment at the end of the year. To avoid this, it's crucial to provide your new employer with detailed information about your previous income, tax paid, and eligible deductions from your former employer.
Enter Form 12B, a crucial income tax form used in India under Rule 26A of the Income Tax Rules, 1962. This form is specifically designed for employees who switch jobs within the same financial year. By filing Form 12B, you supply your new employer with comprehensive details of your income earned from the previous employer(s), tax deducted at source (TDS) already paid, and applicable deductions and exemptions claimed earlier.
With this information, your new employer can correctly calculate the total taxable income and tax payable for the entire year, thus avoiding the risk of double taxation or excess tax deduction during salary disbursement.
For instance, consider Raghav, who switched his job from a digital marketing agency to a global consultancy, taking on a higher salary, new role, and bigger responsibilities. If Raghav's previous organization's 80C declarations were ₹ 55,000 and his final investments under Section 80C were ₹ 90,000 in the new organization, the total tax deducted in 3 months by the last employer would be ₹ 3675, and the total tax to be deducted each month by the new employer would be ₹ 1322.2.
Without Form 12B, you may face higher-than-necessary tax deductions, leading to potential refund claims later and cash flow difficulties. Moreover, failing to submit these details may result in reconciliation of Form 16 from both your past and current employer.
In addition, Form 12B promotes compliance with tax regulations and smoothens your final income tax return filing process. It's important to note that this applies primarily in the Indian tax context; for other jurisdictions, mechanisms like foreign tax credits or part-year state tax returns may be used to avoid double taxation when switching jobs or relocating mid-year.
In conclusion, avoiding double tax deductions involves consolidating your year-to-date income and tax details across jobs. Form 12B is the mechanism that enables your new employer to access and consider previous income and tax paid. By staying informed and taking the necessary steps, you can ensure a smooth transition when changing jobs mid-year.
Your personal finance could be affected if you fail to submit Form 12B, as it might lead to higher-than-necessary tax deductions, potentially requiring refund claims later and causing cash flow problems. Furthermore, Form 12B helps you comply with tax regulations and streamlines your final income tax return filing process, making it crucial for managing your personal finance effectively when changing jobs mid-year, especially within the same financial year in India.
